LGES cuts sales target on weak EV demand, flags US election risk

By Heekyong Yang and Jihoon Lee

SEOUL (Reuters) - South Korean battery maker LG Energy Solution (LGES) said on Thursday its revenue would plunge more than 20% this year and that it would ease capacity expansion due to a sharper-than-expected slowdown in global electric vehicle (EV) demand.

LGES, whose customers include Tesla, General Motors and Hyundai Motor, also said potential change in U.S. EV policies after November's presidential election could further weaken EV demand.

The outlook is likely to further dampen sentiment toward the global EV sector. A disappointing earnings report from Tesla triggered a 12% tumble in the EV leader's stock on Wednesday, wiping almost $100 billion off its market value.

"If the U.S. administration changes, there could be risk to EV demand growth," Kang Chang Beom, LGES chief strategy officer, said on an earnings call with analysts.

Former President Donald Trump, the Republican candidate, is critical of the EV policies of Democrat President Joe Biden and has said he will "end the electric vehicle mandate" if he wins.

However, U.S. efforts to discourage the use of the Chinese supply chain are likely to gain momentum, "which is advantageous in terms of competition," said Kang.

LGES slashed its estimated size of the U.S. federal tax credit it would receive this year under the Inflation Reduction Act to 30-35 gigawatt hours (Gwh) from 45-50 Gwh due to demand slowdown, pointing to a potential drop in profitability.

It has said it would have booked a 253 billion won ($182 million) second-quarter operating loss without an IRA tax credit.

"In the second half, we'll adjust the pace of new expansion or scale down investment in some projects, while maximising the use of our existing capacity," LGES said in an earnings release.

LGES forecast global EV market growth would slow to slightly above 20% this year from 36% last year. It said annual revenue will drop after previously expecting mid-single percentage growth.

LGES posted on Thursday a 58% drop in operating profit at 195 billion won for April-June, in line with an earlier forecast. Revenue fell 30% to 6.2 trillion won.

Shares in LGES jumped 4.2% as of 0435 GMT, rebounding from an earlier fall, as investors factored in potential benefits from increased EU tariffs on China-built EVs and the U.S. further crimping the Chinese EV supply chain.

The market was initially worried about the impact of U.S. EV policy change but those concerns eased as the market digested LGES' comments, lifting shares of battery makers across the board, said analyst Kang Dong-jin at Hyundai Motor Securities.

An LGES senior executive said in an interview with Reuters that he expects EV demand to recover in about 18 months in Europe and two to three years in the U.S., depending in part on climate policies and other regulations.

Shares in LGES rival Samsung SDI rose 3% and those of SK Innovation, which owns battery maker SK On, gained 1.2%.

($1 = 1,386.9700 won)

(Reporting by Heekyong Yang, Joyce Lee and Jihoon Lee; Writing by Miyoung Kim; Editing by Christopher Cushing and Michael Perry)