South Korea’s LG Energy Solution Ltd reported lower-than-expected quarterly profit on Thursday as the company incurred a one-off cost related to General Motors’ Bolt electric vehicle recall, leading to a 6.4% drop in its shares.
The major battery supplier to companies like General Motors Co and Tesla Inc cautioned investors about weaker electric vehicle (EV) demand in Europe and China compared to previous projections.
LG Energy Solution’s Chief Financial Officer, Lee Chang-sil, acknowledged the challenging market environment for the second half of the year, attributing sluggish EV sales in Europe to economic headwinds, including high inflation.
However, the company mentioned that the U.S. market remains unaffected, and demand forecasts in that region have not been revised downward.
For the April-June period, LG Energy Solution reported an operating profit of 461 billion won ($363 million), showing an improvement from the previous year’s 196 billion won. Nonetheless, this figure fell short of both the company’s estimate of 612 billion won and the average analyst forecast of 641 billion won compiled by Refinitiv SmartEstimate.
The primary cause for this profit miss was a one-off cost of 151 billion won, which LG Energy Solution attributed to higher material expenses incurred during the GM Bolt EV recall. The recall involved the replacement of battery packs and modules in earlier models due to fire risks.
During an earnings conference call, LG Energy Solution’s Vice President, Jang Seungkwon, clarified that the recall scope remains unchanged, and the likelihood of further escalation in recall costs appears to be minimal.
The impact of LGES’ statement on sluggish EV demand in Europe, where it serves major customers like Volkswagen and Renault, contributed to the decline in the company’s share price, according to Kang Dong-jin, an analyst at Hyundai Motor Securities.
Despite these challenges, LG Energy Solution’s revenue for the quarter saw significant growth, rising by 73% to 8.8 trillion won, as reported in a regulatory filing.
In conclusion, LG Energy Solution faces short-term hurdles driven by the one-off recall expense and subdued EV demand in certain regions. However, the company maintains optimism in the U.S. market while keeping a watchful eye on the evolving industry landscape.
