LG Energy Solution (LGES), South Korea’s battery giant, has announced a 30% reduction in capital expenditure for 2025. The decision follows the company’s first quarterly loss in three years. The loss is attributed to slower growth in electric vehicle (EV) demand.
For the fourth quarter, LGES reported an operating loss of 226 billion won ($158 million). This is a sharp decline from a profit of 338 billion won in the same period last year. The slowdown has raised concerns within the company and the industry.
Impact of U.S. Market and Policy Changes
One major factor affecting LGES’s performance is the possibility of U.S. policy changes. Recently, U.S. President Donald Trump’s administration indicated it might end tax credits of $7,500 for EV purchases. LGES warns that such a move could depress the U.S. EV market.
Despite the potential setback, LGES’s CFO, Lee Chang-sil, remains optimistic. He believes that while the short-term impact of changes in tariffs and subsidies may slow EV adoption, the overall future direction of the battery industry will remain intact.
Reduced GM Demand, But Hope for Recovery
LGES’s performance in Q4 was also impacted by reduced demand from General Motors (GM). LGES manufactures batteries for GM in North America. The company expects demand to recover starting in the second quarter of 2025 when GM launches new models. This is expected to improve LGES’s business performance.
Revenue Growth Plans for 2025
LGES aims for a 5%-10% revenue growth in 2025. The company’s joint ventures with Stellantis and Honda in North America will play a significant role in this goal. These joint factories are set to begin production in the second half of this year.
As part of its cost-cutting measures, LGES will focus on utilizing existing production capacity instead of building new plants. This strategy aims to optimize resources and reduce spending during challenging times.
Strategic Investments and Global Challenges
In December 2024, LGES made a strategic investment in a GM battery plant in Lansing, Michigan. This marks another step toward securing its position in the growing battery market.
LGES CEO Kim Dong-myung also commented on the future of the EV market. He believes recovery will take place after 2026. However, he also acknowledged the rising challenge from Chinese competitors in the global EV battery sector.
Conclusion: Navigating Challenges with Optimism
LGES’s decision to reduce capex and focus on optimizing existing resources reflects a prudent approach to overcoming short-term challenges. The company remains optimistic about the future, with expectations of a recovery in the EV market in the coming years. However, competition from Chinese companies and changing market dynamics will require careful strategy and adaptation.
