The author is an analyst for NH Investment & Securities. He can be reached at minwoo.ju@nhqv.com -- Ed.
Amid unexpectedly weak demand for EVs, some OEMs have delayed their EV production plans. Conservative capacity expansion is also inevitable at LGES. We highlight the importance of confirming triggers (eg, policy, interest rates, infrastructure, technology) for a demand rebound.
Guidance lowered
Although maintaining a Buy rating, we lower our TP on LG Energy Solution (LGES) by 20% to W530,000 on a 21% cut to 2025F EBITDA to reflect the firm’s conservative expansion plans (529GWh → 468GWh) amid sluggish demand. While the operation rate of the Polish plant is already low due to tepid demand from VW, on Oct 25, GM withdrew its near-term EV production guidance (150,000 units in 2023, cumulative production of 400,000 units over 2022~1H24). However, GM’s production guidance of 1mn units by 2025 is maintained. As EV demand continues to weaken, OEMs’ aggressive EV conversion plans are facing delays. For 2024, we assume global EV sales of 17.7mn units (+26% y-y) and LGES sales of W37.8tn (+11% y-y). Noting that a pulling back of expectations is positive, we highlight the importance of confirming triggers (eg, policy, interest rates, infrastructure, technology) for a demand rebound.
3Q23 review: P and Q down
LGES posted 3Q23 sales of W8.2tn (+8% y-y, -6% q-q) and OP of W731.2bn (+40% y-y; OPM of 8.9%). By battery type, ASP is estimated to have slid 5% q-q for pouch and 1% q-q for cylindrical. We attribute the relatively solid earnings to AMPC of W216bn (+94% q-q) stemming from GM’s recovery in EV production.
We forecast 4Q23 sales of W8.4tn (-1% y-y, +3% q-q) and OP of W571.8bn (+140% y-y; OPM of 6.8%), which includes AMPC inflow of W284.5bn (+32% q-q). Battery ASP should drop 8% q-q for pouch and 10% q-q for cylindrical, and operating rate at the Polish plant will likely decelerate from 70% in 3Q23 to 50% in 4Q23 amid lackluster sales to European customers. Excluding AMPC, automobile battery (pouch) OPM is projected to slump to +1%.