LG Electronics is strategically aligning its electric vehicle (EV) components business, a sector it is nurturing as a future growth engine, with a focus on premium car manufacturers like Mercedes-Benz, BMW, Audi, and more, propelling the business in a promising trajectory.
According to the Financial Supervisory Service’s electronic disclosure system on Nov. 2, LG Electronics’ Vehicle Component Solutions (VS) division, which is responsible for the EV components business, achieved an operating profit margin of 5.4 percent in the third quarter of this year. This marks a notable increase of 1.3 percentage points compared to the same period last year when it was at 4.1 percent. The explanation for this improved performance attributes it to increased sales and successful cost efficiency measures, resulting in the highest quarterly profitability in the division’s history. In the third quarter, the VS division’s revenue amounted to 2.5 trillion won (US$1.88 billion), a 6.7 percent growth compared to the same period the previous year, while operating profit surged by 40.4 percent to 134.9 billion won.
LG Electronics’ success in expanding its EV components business and maximizing profitability can be attributed to its strategic focus on the “premium” brand segment. By securing successive contracts for supplying EV components to premium brands, which typically offer higher profit margins compared to mainstream brands, LG Electronics has achieved improved financial performance. Currently, LG Electronics supplies various components, including infotainment systems, to three major German premium automakers such as Mercedes-Benz, BMW, and Audi.
Another positive factor contributing to LG Electronics’ success in the EV components business is the consecutive strong performance of key customers such as Mercedes-Benz and Volkswagen. The thriving performance in the completed vehicle industry, which is the downstream industry, has led to an increase in orders for EV components. In fact, Mercedes-Benz’s orders surged by 13 percent compared to the previous year, reaching 7.7 billion euros (US$8.21 billion), with revenue growing by 6 percent to 76 billion euros. Similarly, the Volkswagen Group reported an operating profit of 7 billion euros and revenue of 108.8 billion euros, marking a 13 percent and 10.1 percent increase, respectively, compared to the same period last year.
LG Electronics plans to further concentrate its efforts on penetrating the European market which is densely populated with premium brands. Notably, the company recently participated in the “IAA Mobility 2023” international motor show in Munich, Germany, in September, marking its first-ever attendance, and unveiled its plans to establish a factory in Hungary. The proximity of Hungary to major markets such as Germany and France, combined with lower labor costs, makes it an ideal choice as a core production hub for LG Electronics in Europe.
Meanwhile, it is expected that the order backlog for LG Electronics’ VS division will reach 100 trillion won by the end of this year. LG Electronics continues to invest in production facilities to expand its order backlog. It has been operating a factory in Mexico to target the North American region and have also increased investments in factories in Vietnam and Poland.