LG Energy Solution Q3 Operating Profit KRW 756B, Over Half US Credit

LG Energy Solution (LGES) reported third-quarter operating profit of KRW 756 billion on consolidated revenue of KRW 9.6 trillion, with higher energy storage system (ESS) shipments in North America leading the growth.

The company said in its results release, dated Nov. 2 by PR Newswire, that the operating margin was 7.8% and that revenue rose 27.6% from the second quarter. Seoul Economic Daily, reporting on the regulatory filing on Nov. 3, said operating profit was up 25.7% from KRW 601.3 billion a year earlier and revenue up 59% from KRW 6.07 trillion. The same figures were disclosed as a preliminary on Oct. 8, so what is new is the company's explanation and outlook.

How Much of the Profit Is a US Credit

Revenue includes a KRW 416.9 billion North America production incentive, compared with KRW 241 billion in the second quarter, according to the two LGES releases. Seoul Economic Daily's October report on the preliminary figures said that without the credit, revenue was KRW 9.2265 trillion and operating profit KRW 339.1 billion. By our arithmetic, the credit is 55% of the quarter's operating profit, and the margin without it is about 3.7%.

LGES reported operating profit of KRW 113.3 billion on revenue of KRW 7.6 trillion in the second quarter, a 1.5% margin, with KRW 241 billion of incentive. Subtracting the incentive gives an operating loss of about KRW 127.7 billion, our calculation rather than a company figure.

What Drove the Quarter

LGES attributed revenue growth to a significant increase in ESS shipments, more high-voltage mid-nickel pouch cells for EVs, and steady 21- and 46-Series cylindrical cell supply. Profit improved on better plant utilization in Europe, more cylindrical volume and a lower fixed-cost burden as ESS capacity in North America stabilized.

On the ESS side, the company said it secured its first direct-supply behind-the-meter battery energy storage system (BESS) project for a big tech customer, using non-PFE (non-prohibited foreign entity) products. It also qualified as an NVIDIA DSX Ready BESS partner with its LFP-based AC Link product. It completed a new link line in Arizona and is expanding pack capacity in Ohio.

The ESS share of revenue was in the high-20% range for the first half, according to LGES's second-quarter release. The third-quarter release in the version we read gives no share for the quarter. As Voltgrid reported, SK On posted a KRW 80.5 billion operating loss for the same quarter.

Guidance and Capacity Plans

For the fourth quarter, chief financial officer Lee Chang-sil said LGES plans to raise ESS shipments by about 40% from the third quarter and expects revenue to grow about 10%, according to Seoul Economic Daily. He also said margins would narrow, because one-off factors in the third quarter will not recur and initial fixed costs will arise as ESS capacity is prepared at the Honda joint venture.

LGES said it will convert more EV pouch lines to ESS and add prismatic ESS lines, taking North American ESS capacity to more than 70 GWh by the end of 2027. Seoul Economic Daily put the planned figure at 50 GWh by the end of this year. North American cylindrical capacity is to exceed 20 GWh by the end of 2027, with US production of 46-Series cells due by the end of 2026.

The supply chain is part of the same plan. LGES said it will expand its North American non-PFE LFP cathode suppliers to four or more, a thread that runs through its recent L&F contract for LFP cathode and its 720,000-ton materials MOU with POSCO Future M.

What is not confirmed yet

LGES has not named the big tech customer or given the size of the behind-the-meter project. Neither release gave ESS revenue or GWh shipped for the quarter. Net income and the non-operating items below the operating line were not in the releases we read. The 70 GWh figure is a plan, not operating capacity.