Shares of South Korean battery companies took a hit on Wednesday due to disappointing quarterly earnings and a challenging outlook for the electric-vehicle (EV) industry. Leading the sell-off, EV-battery maker LG Energy Solution and battery materials supplier Posco Future M both saw their shares drop over 7%, underperforming the benchmark Kospi index’s 0.4% fall in afternoon trade.
Disappointing Q3 Earnings
LG Energy reported its earnings for the third quarter, ended September, on Wednesday. While the net profit more than doubled to 420.50 billion won ($312.8 million) compared to the previous year, it fell short of the FactSet-compiled consensus forecast of KRW526.68 billion.
Posco Future M also missed the FactSet-compiled consensus forecast, as its net profit dropped by 65% year-on-year to KRW23.16 billion during the September quarter, instead of the expected KRW35.05 billion.
General Motors’ Announcement Adds to the Downbeat Mood
The downbeat mood in the market was exacerbated by General Motors’ announcement following its earnings report. GM revealed that it is abandoning its target to manufacture 400,000 EVs by mid-2024. This reduction in EV production from the U.S. automaker is expected to have an impact on LG Energy, which is a key battery supplier and joint-venture partner for GM. Consequently, Posco Future M, which supplies cathode and other materials to LG Energy and other EV battery makers, is also likely to be affected.
Despite these challenges, South Korean battery companies can capitalize on the growing demand for EVs by adapting to changing market conditions and forging strategic partnerships within the industry.
The Slowing Growth of EV Sales in the U.S.
The electric vehicle (EV) market in the United States has experienced a growth slowdown recently. Major car manufacturers like Ford and Tesla have had to resort to cutting prices and offering discounts in order to attract buyers, which has impacted their profitability.
During a post-earnings call, LG Energy expressed concerns about a potential decline in EV demand in the coming year. It highlighted the already-high market saturation in China and the decelerating demand growth in Europe as factors contributing to this slowdown. According to LG Energy, consumer sentiment has been negatively affected by sluggish economic growth and high interest rates, leading to a projection that its revenue growth in the next year may not match the brisk pace seen this year.
One of the challenges faced by South Korean battery companies is the impending shift by GM and other EV manufacturers towards a cheaper battery option based on lithium iron phosphate (LFP). Citigroup analyst Oscar Yee stated in a research note that the production of these LFP batteries is currently dominated by Chinese players.
In contrast, South Korean companies currently dominate the market for premium and more expensive NCM batteries, which are based on nickel cobalt and manganese.
To address the changing market dynamics, LG Energy announced during the call that it is making efforts to develop its own LFP batteries. The company aims to launch its LFP products by 2026.