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| LG Group's late Chairman Koo Bon-moo, center, shakes hands with the then U.S. President Barack Obama during the groundbreaking ceremony of its battery plant in Michigan, in this July 15, 2010, file photo. / Korea Times file |
By Baek Byung-yeul
LG Chem posted an earnings surprise in the second quarter, thanks to robust sales of electric vehicle (EV) battery cells.
The chemical and battery arm of LG Group, which supplies its battery cells to prominent EV makers such as Tesla, Volkswagen, GM and Hyundai, announced Friday it posted an operating profit of 571.6 billion won ($478.73 million) for the April-June period, up 177 percent from a year earlier.
Despite the negative situation facing the global economy due to the virus pandemic, the earning surprise could be possible as its battery business generated 2.82 trillion won in sales and 155.5 billion won in operating profit amid strong demand for EVs.
This was the second time that LG Chem posted an operating profit in the battery business, following the fourth quarter of 2018. However, industry officials said the profit two years ago was closer to a one-shot surprise while the result generated this time can be interpreted as the moment that LG has finally surpassed the break-even point in the sector.
Cha Dong-seok, chief financial officer at LG Chem, revealed the bright future of its battery cell business as the company expects to see 25 percent more sales in the following quarter.
"With our production capacity growing smoothly, the overall output is expected to show stable growth, and we believe we have set up a structure of profit-making in the second quarter," Cha told investors during the earnings call on Friday.
For LG Group, watching the rise of its battery business is extra meaningful given the conglomerate finally started to produce a return almost 30 years after it entered the industry.
LG opened its battery business in 1992 when its late Chairman Koo Bon-moo recognized the potential of rechargeable batteries during his visit to the Atomic Energy Authority office in the U.K. and ordered research into commercialization of the product.
Though there were occasions that the company was criticized for wasting time and money on the business, it achieved success after years of hard work and has now secured about 17,000 technology patents in the sector.
The earnings announcement also came as a meaningful moment for the country's secondary battery industry as the record has put an end to the so-called first battery cell war in which the newly established battery cell makers have competed for hegemony of the high-potential industry.
Concentrating on increasing battery cell production capacity and developing its technology, the company overtook Japan's Panasonic this year to become the largest EV battery supplier in the world. The company's market share stood at 24.2 percent from the January-May period, according to market tracker SNE Research.
Industry analysts said the company now can concentrate on improving profitability as EV makers are rushing to secure a stable supply chain for battery cells ahead of an expected EV boom.
Though LG Chem didn't reveal the specifics during its second-quarter-earnings call with its investors, market consensus suggests that the ratio of operating profit to sales of its battery business was between 1 percent and 4 percent.
LG Chem elaborated its profit from the battery business would grow by 30 percent every year. "In the third quarter, sales across our battery business will grow more than 25 percent from the second quarter, in the wake of European carmakers' launch of new EVs, increasing sales of cylindrical EV batteries and rising demand for small batteries for IT devices," the company said.
