LG Energy Solution's factory in Cheongju, North Chungcheong Province / Courtesy of LG Energy Solution

LG and POSCO decided to slow down their investments in the battery sector to better deal with decelerating global demand for electric vehicles (EVs), both companies said Thursday.

After announcing 75 percent and 30 percent year-on-year drops in its first-quarter operating profit and revenue, LG Energy Solution (LGES) confirmed that it will lower its capital expenditure this year to improve profitability.

This is the first time for the battery maker to declare a reduction in investments, since its launch in 2020. The company had initially told investors in January this year that its capital expenditure — this year — would exceed the 10 trillion won ($7 billion) it spent in 2023.

"We will continue investments that are necessary to cope with long-term demand and to secure production capacity in North America, but our overall facility investments will go down to some degree," LGES Chief Financial Officer Lee Chang-sil said during a conference call on first-quarter earnings.

Although the company posted 157.3 billion won in operating profit, it is virtually considered to have suffered a 31.6 billion won operating loss, as it reflected 188.9 billion won worth of advanced manufacturing production credit in accordance with the U.S. Inflation Reduction Act.

LGES also agreed with the skeptical outlook of securities analysts who believe that the company will not boost profits during the first half, as global carmakers are expected to resume the release of their new EV models during the second half at the earliest.

"Major metal price drops will continue to affect our second-quarter earnings, and it will take time for demand recovery in the European market," Lee said. "From the perspective of profitability, it will be difficult to achieve meaningful improvement."

POSCO Future M's factory in Gwangyang, South Jeolla Province / Courtesy of POSCO Future M

POSCO Holdings, which showed 17 percent and 7 percent year-on-year declines in first-quarter operating profit and revenue amid the global oversupply of steel products, managed to make a profit from its battery materials business.

POSCO Future M achieved 38 billion won in operating profit, bolstered by a gain of 46.7 billion won from the sale of certain lithium and other minerals in stock. This marks a significant turnaround from the fourth quarter of 2023 when the company incurred a 74 billion won operating loss, largely attributable to the minerals in stock.

Although the steelmaker's holding firm emphasized its commitment to steel and battery materials businesses, it also confirmed its plan to slow down investments in the battery sector.

"Considering the slow growth in the EV market, we will delay investments in some businesses and focus on lucrative businesses," POSCO Holdings Chief Strategy Officer Jeong Ki-seop said during a conference call on first-quarter earnings. "For example, some of our planned investments in recycling plants abroad will be delayed, considering the sluggish supply of EVs and waste batteries."