NH Investment & Securities on the 25th said that for LG Energy Solution, although the pace of earnings improvement is slow due to weakness in the U.S. electric vehicle (EV) market, it is passing the bottom, and it maintained a Buy rating. It cut the target price by 4.9% to 580,000 won from 610,000 won to reflect a discount rate adjustment.

A bird's-eye view of the LG Energy Solution battery plant in Arizona, producing 46-series cylindrical and lithium iron phosphate (LFP) energy storage system (ESS) batteries. /Courtesy of LG Energy Solution

Joo Min-woo, an analyst at NH Investment & Securities, said, "Profitability in the automobile sector is lower than expected due to U.S. EV weakness and production line conversion costs," but noted, "This is only a temporary effect that appears while passing the bottom."

The analyst projected that the earnings improvement trend will gain traction in the second half. As the contraction in the U.S. electric vehicle market eases, some customers will resume building battery inventories, and new orders for energy storage systems (ESS) and solid sales of Tesla are expected to drive results.

In particular, the ESS business is expected to turn profitable in the second half, with new orders of about 90 gigawatt-hours (GWh). Tesla is also seeing continued strong sales in Europe and Asia, and as countries approving full self-driving (FSD) expand, it is highly likely to lead to increased demand for cylindrical batteries.

NH Investment & Securities estimated LG Energy Solution's consolidated sales for the second quarter of this year at 7.4 trillion won, up 33% from a year earlier and 14% from the previous quarter. It expected operating profit to be 218.1 billion won, topping the market consensus of 207.5 billion won.

It also viewed positively that part of the 600 billion won facility compensation from a North American automaker (OEM) will be reflected in results. In addition, the advanced manufacturing production credit (AMPC) for the ESS institutional sector and the effect of tariff refunds are expected to improve profitability.

The small battery business is also projected to grow 10% from the previous quarter, exceeding the company's prior guidance, helped by Tesla's strong sales in Europe and Asia.

The analyst said, "Rather than U.S. EV weakness, attention should be paid to the earnings improvements that ESS and Tesla will deliver in the second half," adding, "The market will gradually reach a consensus that the bottom has been passed."

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