LG Energy Profit Beats Estimates Thanks to Bumper US Tax Credit

LG Energy Profit Beats Estimates Thanks to Bumper US Tax Credit

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(Bloomberg) — LG Energy Solution Ltd. soared as much as 8.3% in Seoul trading after its preliminary third-quarter earnings beat analysts’ expectations, helped by a US tax credit policy for creating jobs and attracting investment. 

Operating profit for the three months to Sept. 30 rose 40% from a year earlier to 731 billion won ($545 million) versus the 681 billion won mean estimate from analysts tracked by Bloomberg. Revenue rose 7.5% to 8.2 trillion won, LG Energy said in a filing Wednesday. Analysts had forecast 8.5 trillion won. 

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Final earnings will be disclosed at 10 a.m. on Oct. 25. 

Earnings included a $160 million credit from the US Inflation Reduction Act, the South Korean company said. Without that, operating profit stood at 515 billion won and would have been up 12% from a year earlier, when the company didn’t receive the benefit.  

LG Energy has said that US President Joe Biden’s IRA grants domestic battery manufacturers a tax credit of $35 per kilowatt-hour for battery cells. LG Energy has a plant in Michigan and operates another with General Motors Co. in Ohio, and it plans to build six more. 

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“The US credit was better than market expectations,” Jeon Chang-Hyun, analyst at Daishin Securities in Seoul, said by phone after the announcement. “That means the demand for LG’s battery in North America is better than our expectations and its plant is working without issues.”

LG Energy’s 8.3% rally was its biggest intraday gain since March 2022. 

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Jeon added that the US business is helping to offset weaker losses in Europe, and that more details will come with the final results. 

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Still, Austin, Texas-based Tesla Inc., a key LG Energy customer, delivered about 20,000 fewer EVs than expected last quarter, and has been cutting prices of its models to lift demand. It also halted some assembly lines to prepare for the release of upgraded versions of its EVs, hurting LG Energy’s sales, according to Yuanta Securities Korea and Mertiz Securities Co. 

Read More: Tesla Cuts Model 3, Y Prices in US After Quarterly Sales Dip 

In Europe, another major customer — Volkswagen AG — is curbing production of EV models at two German plants because of shrinking government subsidies and declining consumer demand. South Korea’s three battery makers — LG, Samsung SDI Co. and SK On Co. — are losing market share in the region, holding a combined 56% at the end of August, down from 65% a year earlier as Chinese rivals muscle in, according to Seoul-based Hana Securities Co. 

Korean battery-maker analysts are also watching how negotiations unfold between US carmakers and the United Auto Workers union, as any major strike would affect operations at plants run by LG Energy and General Motors Co. 

(Updates with comments from analysts and more details.)

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