LG Electronics has reportedly raised the operating rate of its U.S. local production bases, including the Tennessee plant, to the maximum to respond to U.S. tariff measures. Analysts say the impact of tariffs will be minimal compared with worries thanks to LG Electronics' strategy to make its production bases more flexible. After results deteriorated due to weakness in the TV business, LG Electronics plans to dispel concerns about the fallout from tariffs and go all-out to improve earnings by expanding business-to-business (B2B) operations, among others.
According to the industry on the 2nd, LG Electronics is known to be maintaining a "full operation" status, raising the Tennessee plant's operating rate to the maximum to reduce the fallout from U.S. tariffs. The Tennessee plant is a home appliance factory LG Electronics built with an investment of $462 million (about 670 billion won) to respond to the first Trump administration's tariff policy. Home appliances such as washing machines and dryers sold in the United States are produced there. It can produce 1.2 million washing machines, 600,000 dryers, and 350,000 WashTowers annually, and began production in 2023.
As the second Trump administration rolled out tariff policy, expectations grew that domestic corporations such as LG Electronics, which have a high share of exports to the United States, would be hit. Cho Joo-wan, CEO of LG Electronics, also told a reporter in Apr. that "the impact of (the second Trump administration's) tariffs will begin to be reflected in earnest from the second quarter," adding, "If it goes beyond the level LG Electronics can bear, we will have to consider raising prices on most products."
However, LG Electronics is assessed to have minimized damage through its strategy to make production bases more flexible. Kim Dong-won, an analyst at KB Securities, said, "Despite tariff uncertainty, LG Electronics is consistently pursuing a global production site optimization strategy by increasing the production share of the Tennessee plant in the United States," adding, "The impact of tariffs on the home appliance business is expected to remain limited, contrary to concerns." A home appliance industry official said, "It is not that there is no tariff burden on LG Electronics, but it is true that the company has reduced damage by raising the operating rate of the Tennessee plant and others," adding, "It appears the company will closely review the impact on future product costs, such as increases in materials and supplies prices, to defend profitability."
Having reduced the fallout from tariffs, LG Electronics plans to mount an all-out response to break out of its slump. In the second quarter this year, LG Electronics posted operating profit of 639.4 billion won, down 46.6% from a year earlier. The third quarter is also expected to be challenging as competition intensifies in areas such as the TV business. According to FnGuide, LG Electronics' operating profit in the third quarter this year is estimated at 609.8 billion won, down about 15% from the same period last year. Hwang Ji-hyun, an analyst at NH Investment & Securities, said, "Along with weakness at the MS division (which oversees the TV business), one-off expenses from voluntary retirement that began in the third quarter are inevitable."
LG Electronics plans to improve profitability by diversifying its portfolio, including B2B. In particular, the VS division, which oversees the vehicle components business, is expected to achieve a record-high operating margin as revenue conversion continues from its high-margin backlog of vehicle infotainment orders. The company also plans to keep expanding orders for cooling solutions installed in data centers. Park Kang-ho, an analyst at DAISHIN SECURITIES, said, "Due to the electrification of automobiles and increased sales of high value-added products, the VS division's operating margin will exceed expectations," adding, "Proactive responses to tariffs are also expected to support upward revisions to results."