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LG Energy Solution’s profits more than doubled unexpectedly in the second quarter, as the world’s third-largest electric vehicle battery producer benefited from Joe Biden’s tax credits that are set to be scaled back under his successor Donald Trump.
The South Korean supplier to General Motors and Tesla on Monday estimated its operating profit for April to June to be Won492bn ($360mn), up 152 per cent from year earlier. It was much higher than the Won294bn profit forecast by analysts in an LSEG estimate. Sales are estimated to have fallen 9.7 per cent to Won5.6tn.
Analysts said the company’s US plants produced more batteries than expected as carmakers appeared to frontload orders over fears of higher tariffs on cars. This raised profits for LGES, as it continued to reap benefits from a production tax credit for clean energy under Biden’s Inflation Reduction Act.
Excluding the so-called advanced manufacturing production credit, second-quarter operating profit would be just Won1.4bn, LGES estimated, with its operating profit margin at just 0.03 per cent.
LGES, the world’s largest non-Chinese battery producer, was among the main beneficiaries of the Biden-era act, which sought to decrease US dependence on Chinese clean energy technology and offered tax breaks for EV purchases and EV technology production.
Some of those subsidies will be scaled back under Trump’s sweeping budget bill. A $7,500 tax credit for consumers who buy or lease EVs and a $4,000 credit for the purchase of a used EV will be eliminated. “The scrapped tax credits will probably hurt EV demand,” said Kim Chul-joong, an analyst at Mirae Asset Securities.
However, tax incentives for companies that produce and selling EV batteries in the US, such as LGES, will remain intact until 2032. The latest legislation also tightens restrictions on Chinese and China-invested companies’ access to federal tax credits.
“We are relieved that the AMPC will be maintained and the clause on foreign entities of concern has been strengthened, making it more difficult for Chinese companies to benefit from the tax scheme, which is good for us,” said a spokesperson for LGES.
Global EV battery usage excluding China rose by 26 per cent in the first five months of this year compared with 25 per cent during the same period last year, according to SNE Research.
Usage of LG batteries grew by 13 per cent in that time, while usage of batteries produced by Chinese giant and global market leader CATL grew by 36 per cent.
Monday’s upbeat profit estimate boosted the company’s shares 2.4 per cent to Won318,000, while the benchmark Kospi index was little changed.
The company’s shares have fallen more than 8 per cent so far this year on a prolonged decline in EV demand. LGES is expected to release detailed quarterly results later this month.
