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LG Energy Solution forecasts slower revenue growth for 2024, driven by reduced EV demand and increased competition while cutting capital expenditure to essentials.

South Korean battery manufacturer LG Energy Solution (LGES) recently shared a cautious outlook on revenue growth for the upcoming year, citing reduced demand in the electric vehicle (EV) sector as a primary factor. Following a notable 39% drop in third-quarter profits, LGES announced plans to significantly scale down its capital expenditure for 2024, with exceptions only for essential investments. The company supplies batteries to major automakers such as Tesla, General Motors (GM), and Hyundai Motor and anticipates that macroeconomic challenges, rising competition from Chinese battery manufacturers, and shifting automaker strategies could further impact growth in the EV market.

Slower Growth Projections in the EV Sector

LG Energy Solution’s Chief Financial Officer, Lee Chang-Sil, outlined the company’s approach in light of various challenges facing the EV market. "Looking ahead to 2025, we see continuing macro uncertainty and geopolitical risk," Lee said during an earnings call. He highlighted an increased export of batteries by Chinese rivals and the growing trend of automakers planning to produce their own batteries. These developments, he noted, would intensify competition and add pressure on LGES’s operations.

Lee emphasized a conservative outlook for revenue growth in 2024, signalling that LGES expects demand for EV batteries to remain subdued in the near term. To adapt to these conditions, the company aims to significantly reduce capital expenditures in the coming year, focusing on essential investments only.

Impact of US Presidential Election on EV Market Dynamics

The outcome of the US presidential election next week could play a substantial role in determining the future trajectory of the EV market, according to LGES. The political climate in the United States, particularly policies around EV incentives and climate regulation, has historically influenced demand for electric vehicles. Under the current administration, substantial tax credits and incentives have boosted the US EV market. However, the company remains uncertain about the market’s direction if the political landscape shifts, especially if former President Donald Trump is re-elected, as he has expressed intentions to roll back EV tax credits.

Analysts predict that the growth pace in EV demand could be slower if Trump returns to the White House. “The general view is that the pace of EV demand growth could be slower if Donald Trump is elected to a second term… as he has suggested cutting EV tax credits,” commented Kang Dong-jin, an analyst at Hyundai Motor Securities. These tax credits have played a crucial role in driving EV sales in the US, and any reduction could dampen demand.

Competitive Pressures from Chinese Manufacturers

LG Energy Solution also faces mounting competition from Chinese battery manufacturers, which are increasing their exports and taking a larger share of the global market. Chinese companies have been aggressively expanding their production capacities and can offer competitive pricing, placing pressure on established players like LGES. This surge in battery exports from China presents a new challenge, especially as the cost advantage of Chinese manufacturers becomes a growing concern in markets outside Asia.

To counter this competitive pressure, LGES has been ramping up efforts to innovate and differentiate its products. However, the scale and speed of Chinese battery makers' expansion have raised concerns about pricing wars and the erosion of market share for non-Chinese companies.

Automakers’ Shift Towards In-House Battery Production

Another significant trend impacting LGES is the decision by several automakers to develop in-house battery manufacturing capabilities. Companies like Tesla and GM have been exploring ways to reduce reliance on external suppliers, including building their own battery production plants. This trend, if it continues, would reduce the market for external battery suppliers like LGES and could affect long-term growth prospects in the EV battery sector.

Automakers' move to manufacture their own batteries aims to streamline their production processes, reduce costs, and control the quality of essential components. This shift toward vertical integration reflects broader changes in the automotive industry as companies attempt to secure their supply chains amid global uncertainties and rising costs.

Demand Fluctuations and Recovery Timeline

The EV industry has encountered multiple challenges over the past year, including high prices, limited charging infrastructure, and increased competition from more affordable models offered by Chinese brands. These factors, coupled with economic uncertainties, have contributed to a slowdown in EV demand globally.

While some recovery is anticipated, industry experts believe it may take time. A senior LGES executive mentioned to Reuters in July that demand in Europe could recover in around 18 months, whereas the U.S. market may take two to three years to stabilize, depending largely on climate policies and regulatory measures. In the meantime, LGES will continue to monitor market trends closely and adjust its strategies to align with anticipated shifts in demand.

Revised Capital Expenditure Plans

In response to these challenges, LGES is adopting a cautious approach to capital investment. The company had previously indicated that its capital expenditure for 2024 would remain close to 2023 levels, which amounted to around 10.9 trillion won. However, with the recent drop in profit and a conservative revenue forecast, LGES now plans to reduce capital spending, prioritizing only essential and strategic investments.

This reduction aligns with LGES’s objective to improve operational efficiency and maintain financial stability amid uncertain market conditions. By tightening capital expenditure, the company aims to navigate the challenging environment while preserving resources for critical projects that align with its long-term objectives.

Future Prospects and Strategic Focus

Looking forward, LG Energy Solution will likely continue to focus on maintaining partnerships with key clients like Tesla, GM, and Hyundai. These partnerships remain essential as the company seeks to strengthen its position in the competitive EV battery market. Additionally, LGES may explore collaborations with automakers who do not have in-house battery capabilities, providing tailored solutions to meet specific client needs.

Innovation will play a crucial role in LGES’s strategy, as the company may need to differentiate its products through advanced battery technologies. Investments in research and development to enhance battery efficiency, durability, and cost-effectiveness could provide LGES with a competitive edge, especially as global demand for high-quality batteries rises.

LG Energy Solution faces a challenging landscape marked by slowing EV demand, intensified competition from Chinese manufacturers, and evolving customer preferences toward in-house battery production. Amid these pressures, LGES has adopted a conservative stance on revenue growth for the next year and plans to cut capital expenditures to focus on core and essential investments. The upcoming U.S. presidential election and geopolitical uncertainties further add to the complexities of the market outlook.

By emphasizing strategic partnerships, focusing on innovation, and streamlining capital investment, LGES aims to navigate the current headwinds and position itself for long-term growth. The company’s resilience and adaptability will be critical as it responds to market changes and strengthens its foothold in the evolving EV battery industry.