Earnings call transcript: LG Energy Solution Q2 2025 sees strong revenue beat, stock drops

LG Energy Solution (LGES) reported robust financial performance for the second quarter of 2025, with earnings per share (EPS) significantly surpassing forecasts. The company achieved an EPS of 1,353.85, well above the anticipated 558.92, representing a surprise of 142.23. Revenue also exceeded expectations, reaching 5.7 trillion won against a forecast of 5.6 trillion won. Despite these positive results, LGES’s stock fell by 7.98% during open market trading, closing at 473,000 won, as investors reacted to broader market uncertainties and potential headwinds in the second half of the year.

Key Takeaways

• LGES reported a substantial EPS surprise, outperforming market expectations by 142.23.
• Revenue reached 5.7 trillion won, exceeding forecasts by 1.84%.
• Despite strong financials, the stock dropped nearly 8% due to market concerns.
• The company is expanding its Energy Storage Systems (ESS) capacity in North America.
• LGES anticipates challenges in the EV market due to subsidy changes.

Company Performance

LG Energy Solution demonstrated strong performance in Q2 2025, with both EPS and revenue surpassing expectations. The company is focusing on maximizing capacity utilization and cost efficiency, aiming to enhance profitability through the expansion of its ESS business. This strategic focus comes amid potential challenges in the second half of the year due to market uncertainties and changes in subsidy policies affecting the EV sector.

Financial Highlights

• Revenue: 5.7 trillion won, exceeding forecasts by 1.84%.
• Earnings per share: 1,353.85, significantly above the forecast of 558.92.
• The stock price dropped by 7.98% during open market trading.

Earnings vs. Forecast

LGES’s EPS of 1,353.85 was a notable beat against the forecast of 558.92, indicating a positive surprise of 142.23. The revenue of 5.7 trillion won also exceeded the projected 5.6 trillion won, marking a 1.84% surprise. This strong performance contrasts with any previous quarters where earnings met or slightly missed expectations, highlighting a significant positive deviation this quarter.

Market Reaction

Despite the strong earnings report, LGES’s stock fell by 7.98% during open market trading, closing at 473,000 won. This decline reflects investor concerns over potential challenges in the latter half of the year, including market uncertainties and changes in EV subsidies. The stock’s performance was notably below its 52-week high of 527,000 won, indicating broader market pressures.

Outlook & Guidance

Looking ahead, LGES plans to expand its ESS capacity in North America, targeting over 30 GWh by 2026. The company is also preparing for potential changes in U.S. tax incentives and procurement requirements, which could impact its strategic initiatives. Despite the anticipated slowdown in the EV market, LGES remains focused on its ESS business to offset potential demand declines.

Executive Commentary

• "We are the only company that is able to provide LFP ESS batteries on the ground," stated Kim Min-su, ESS Battery Planning, emphasizing the company’s unique position in the market.
• CFO Lee Chang-shil noted, "North America ESS demand is showing a much more solid overall situation than previously expected," highlighting growth prospects in the region.
• Management Strategy’s Lee Eon-hee commented, "We will continue to make efforts to improve the operating rate and profitability," reflecting the company’s commitment to enhancing financial performance.

Risks and Challenges

• Potential slowdown in the EV market due to subsidy changes.
• Market uncertainties in the second half of the year.
• Supply chain optimization to meet new procurement requirements.
• European market challenges with sluggish EV battery demand.
• Adjustments in production timing and scale in response to real-time market conditions.

Q&A

During the earnings call, analysts inquired about the impact of the Inflation Reduction Act (IRA) policy changes on the EV and ESS markets. LGES executives addressed strategies for meeting new procurement requirements and discussed capacity expansion plans in North America. The company also explored challenges in the European market and its response strategies to adapt to changing demand dynamics.

Full transcript - LG Energy Solution Ltd (373220) Q2 2025:

Lee Chang-shil, CFO, LG Energy Solution: Thank you for the opportunity to ask questions. I do think that the second quarter performance has been strong. If you look at the market, however, I do think that, in general, there are concerns about the second half because of the uncertainties that still prevail. Could you provide your third quarter and also second half expectations in terms of the business performance going forward? The second question that I would like to ask you is about your North American ESS business, which is something that you have emphasized during your presentation. I do believe that the market also believes that there will be high growth within this area. However, how are you planning to address the demand within the market? If you could share any new orders or your outlook for the business, that would be appreciated.

Kim Min-su, ESS Battery Planning and Management, LG Energy Solution: stabilization to some extent. Also, as I mentioned, due to the revised IRA policy, the EV subsidy for consumers ended earlier than expected. Naturally, we believe that EV demand in the second half will be affected, but the sales trend of EV vehicles itself remains solid. We expect that battery inventory in the industry will be normalized starting in the second half. In addition, new model launches by cylindrical EV customers are scheduled for the second half, and there is new model demand from IT companies as well. Accordingly, we have planned for increased sales of small batteries, especially centered on power grid projects. Starting in the third quarter, shipments of locally produced volumes from Michigan will begin in earnest, so in the second half, we expect to achieve significant ESS sales growth to fill the gap left by automotive batteries.

In terms of profit and loss, we are focusing on maximizing the utilization rate of secured capacity by completely readjusting existing investment plans and overcoming the temporary slowdown in EV demand through the expansion of the ESS business, as mentioned. We are minimizing the burden of fixed costs through resource reallocation and cost efficiency. Also, by reducing material ratios through cost actions and improving profit and loss through the expansion of small and North American ESS volumes, we are steadily making progress. Therefore, starting from the second quarter, we believe we can achieve meaningful profit improvement in the second half. Yes, that is all.

Lee Chang-shil, CFO, LG Energy Solution: Thank you for asking these questions. I do believe that the questions you have asked are what are the center of interest right now for the market, so thank you for them. For the first question you asked, which was the second half outlook for our business, I can address this. I am the CFO Lee Chang-shil, and maybe for the second question I can ask the related business division to address that question. As you are aware, in the U.S. right now, from country to country, the U.S. is coming to an agreement with various countries about their tariff policies. In addition to that, the One Big Beautiful Bill Act has been finalized, which had led to some of the uncertainties related to the demand.

Going forward, we do think that somewhat some of the volatility that we have seen within the secondary battery industry would be coming into a more moderate phase going forward. However, as mentioned before, because the IRA in itself has been amended with new policies, on one side for the consumer EV subsidies, it will be coming to an end earlier than initially expected. We do think that naturally in the second half, the EV demand will be impacted. However, if you look at the EV auto sales trends in itself, they remain solid. With regards to the battery inventory that remains within the industry, we do think that towards the second half of the year, there will be adjustments that will be taking place.

If we look at the market for the cylindrical EV customers that we have, there will be new models that will be launched in the market in the second half of the year. Also, for IT manufacturers, there are also demands related to the new models that will be generated. We do think that this will drive an increase in the mobility and IT device-related batteries. In addition to that, related to grid-related projects from the third quarter, we will be full-fledgedly shipping out various production volumes from our site in Michigan. In the second half, we do think that there will be a significant increase in our ESS-related revenue that we will be able to achieve. To talk about our overall profitability, we do think that there will be a full-fledged adjustment of the existing CapEx funds that we have.

Therefore, for a certain period of time, there will be somewhat of a slowdown in EV demand, which we think we can overcome with the ESS business growth that we will be able to see. We are trying to use the existing CapEx capacity that we have in terms of the utilization to maximize it as much as possible. In addition to that, there will be some reallocation of resources and also some cost efficiency efforts that will be put in place to minimize our overall fixed cost. In addition to that, we will be trying to decrease our overall material cost ratio by engaging in cost innovation efforts. At the same time, for mobility and IT devices and ESS-related demand, which we do believe will continue to grow, we do think that this will continue to contribute to our profitability.

Using the second quarter as a standpoint, we will try to continue with the meaningful momentum that we have been able to generate.

Kim Min-su, ESS Battery Planning and Management, LG Energy Solution: 네, 두 번째 질문 주신 견조한 북미 ESS 수요 대응 계획 관련해서 신규 수주 모멘텀 및 향후 추이 지속 전망 여부에 대해서 제가 답변드리겠습니다. 답변자는 ESS 기획관리담당 김민수입니다. 현재 당사는 북미 시장에서 LFP ESS 제품을 현지 생산하여 공급할 수 있는 유일한 업체로서, 경쟁 우위를 확보하고 있을 뿐 아니라, 시장 수요와 고객의 니즈에 맞는 제품 포트폴리오를 준비 중에 있습니다. 더불어 AI 데이터 센터 확산에 따른 전력 수요 증가 영향으로 전력망을 중심으로 연평균 20% 이상의 고성장세가 지속될 것으로 전망되는 가운데, 기존의 ESS 세제 혜택이 유지되는 등 정책 지원까지 더해지며, 수주 모멘텀은 더욱 강화되고 있습니다. 이에 당사는 지난 6월 말 기준으로 이미 50 GW를 상회하는 수주 잔고 물량을 확보하였고, 현재 디벨로퍼 및 유틸리티 업체 등 다양한 고객사들을 대상으로 한 추가 수주 모멘텀이 지속적으로 이루어지고 있습니다.

현재 당사는 신규 폼팩터를 포함하여 ESS 향으로 다양한 LFP 제품 공급을 논의 중에 있으며, 다수의 대규모 전력망 프로젝트가 활발히 논의되고 있는 만큼, 향후 수주가 완료될 시 시장과 소통할 수 있도록 하겠습니다. 이상입니다.

Lee Chang-shil, CFO, LG Energy Solution: For the second question that you have asked, which was about how we would be dealing with the strong ESS demand that we see in North America in terms of any new orders that we have and the outlook going forward, maybe I can address that question. I am from the ESS Battery Planning and Management Department. My name is Kim Min-su. If you look at the current situation in the North American market, we do have a strong competitive edge as being the only company that is able to produce LFP ESS products in North America and supply them on the ground. Not only that, but in terms of market demand and also our customer needs, we are preparing a product portfolio that would be able to satisfy these elements.

In addition to that, if you look at the market, because there are more AI data centers that are being created and as a result of that, overall power demand is increasing, surrounding the power grid in itself, there is a very high growth that will continue within the market, representing a CAGR of more than 20%. As a result, in addition to that, on the ESS tax benefit side, these tax benefits are being maintained, which does provide a backdrop of policy support for the market. We think this all in all will lead to a much stronger demand going forward in terms of the demand momentum. As of the end of June, for the company, we already have been able to secure an order book that is above 50 gigawatt hours.

Currently, we also continue to see new order momentums flowing in from a wide variety of customers, including local developers and also utility companies. As of the current time for the company, including new form factors that we have for ESS batteries, we do have various discussions on the supply side for a wide variety of LFP products that are ongoing. In addition to that, there are also discussions for a multiple number of large-scale power grid-related projects. Once these orders are completed, we will make sure to communicate with the market accordingly.

Lee Eon-hee, Management Strategy, LG Energy Solution: 다음 분 질문 받겠습니다. 다음으로 질문해 주실 분은 하나증권의 김현수 님입니다. The next question will be presented by Kim Hyun-soo from Hana Securities. Please go ahead with your questions.

Kim Min-su, ESS Battery Planning and Management, LG Energy Solution: 네, 안녕하십니까. 하나증권의 김현수입니다. 질문 기회 감사드립니다. 저는 정책 관련해서 두 가지 질문 드리고 싶은데요. 먼저 최근에 아까 말씀 주신 대로 미국에서 감세 법안 통과되면서 전기차 보조금이나 재생 에너지 시장에도 영향이 좀 있을 것 같은데. 이로 인해서 기존 대비해서 전기차랑 ESS 시장별로 수요 변화는 어떻게 전망하고 계신지, 그리고 대응 전략은 어떻게 구상하고 계신지 궁금합니다. 두 번째는. AMPC하고 PFE에 관련된 질문입니다. AMPC나 ITC 수취하기 위해서. 이번에 신설된 게 2026년부터. 금주일 단체로부터의 원재료 조달 요건을 충족해야 한다는 법률 조건이 신설됐는데요. 이 정책의 영향하고 이를 대응하기 위해서 지금 LG Energy Solution은 어떻게 준비하고 계신지 궁금합니다. 감사합니다.

Lee Chang-shil, CFO, LG Energy Solution: Yes, thank you for the opportunity to ask questions. I have two questions that I would like to ask you about policy. The first is that, as you have just mentioned, in the U.S., the OBBA has been finalized. As a result of that, I do think that there will be impacts on the EV subsidies that were provided and also the renewable energy market as a whole. In terms of the demand changes that may take place as a result of that, could you break it down between what changes you see on the EV demand side and on the ESS demand side and talk about what strategies you are going to implement to address these changes accordingly?

The second question that I would like to ask you is that if you look at the AMPC and ITC-related changes that have been taking place with the new act, there is a new PFE clause that does need to be satisfied from 2026 to be eligible for AMPC and ITC credit. This is a new condition that has been added. What impact do you see coming from this, and how are you planning to deal with this, and how is the company preparing for this going forward?

Lee Eon-hee, Management Strategy, LG Energy Solution: 안녕하십니까. 경영 전략 담당 이연희입니다. 첫 번째 질문하신 미국 감세 법안 통과에 따른 EV ESS 시장별 수요 전망 및 당사 대응 전략에 대해서 말씀드리겠습니다. 앞서 발표 자료에서 CFO께서 자세히 설명드린 것처럼 전기차 보조금 혜택이 9월 말 이후로 조기 소멸되고 PFE 조달 허용 요건이 추가되는 등 미국 감세 법안 내용이 확정됨에 따라서. 당사 전방 시장인 EV와 ESS 사업 환경에도 영향이 있을 것으로 보여집니다. EV 시장의 경우에는 보조금 혜택 폐지에 따라서 OEM들이 EV 사업 속도를 조절하고 있으며, 보조금 일몰 후에. 그래서 내년 상반기까지는 전반적으로 수요 둔화가 예상이 됩니다. 그럼에도 불구하고 OEM들이 저가형 EV 라인업을 확대를 하면서 소비자가 가격 부담 경감 노력을 지속되고 있고, 앞으로 본격적으로 시작될 자율주행 상용화는 EV의 지불 가치 상승에 긍정적으로 작용할 것으로 전망하고 있습니다. 당사의 경우에는 내년 상반기에 북미 JV 가동이 시작함에 따라서 점진적으로 물량이 성장될 것으로 기대하고 있습니다.

이에 따라서 당사는 EV는 전략 고객사와 각형 개발 및 LFP, LMR 염가 솔루션 확보를 통해서 펀더멘탈 경쟁력을 지속 강화해 나가도록 하겠습니다. ESS 시장의 경우에는 미국 ESS 전력망 시장이 내년 수요 성장이 올해 대비 60%를 상회하는 고성장세가 예상되고 있습니다. 또한 기존의 세제 혜택들이 유지되면서 수요 예상 규모에는 변동이 없어서 현지 생산 역량을 보유한 비중국 업체에 대한 선호는 더욱 커질 것으로 예상하고 있습니다. ESS는 완화된 공급망 요건을 활용해서 염가 소재 적용으로 코스트 경쟁력을 강화하고. 현지에서 LFP 제품 공급이 가능한 유일한 업체로서 경쟁 우위를 기반으로 해서 앞으로 가파른 수요 성장세에 적극 대응하고 추가 수주 활동 동안 지속적으로 강화해 나갈 계획입니다.

Lee Chang-shil, CFO, LG Energy Solution: For the first question that you have asked is with regards to the changes that have been taking place in the tax act, what the overall impact would be on EV and ESS demand and what would be our strategy to adjust this going forward. Maybe I can address that from corporate strategy. I am Eon Hee. As the CFO did explain in detail in the presentation before, if we look at the overall situation from the end of September, the overall EV subsidies that would have been provided will be going away. There is a new prohibited foreign entity or PFE procurement condition that has been added on. We do think that this will have an impact on the EV and ESS business environment.

To talk about the EV side first, right now, because the subsidies will be abolished going forward, we do think that on the OEM side, they will be pacing themselves a bit more in terms of their EV business expansion. After the subsidies end, from that point of time until the early part or first half of next year, we do think that there will be an overall slowdown in the demand within the market. Nevertheless, we do think that the OEMs will be continuously expanding their low-end EV lineup so that they can lessen the burden that consumers may feel when purchasing new cars. In addition to that, as autonomous driving becomes fully commercialized, with that, we do think that will increase consumers’ willingness to pay for EV vehicles.

For the company, from the first half of next year, we will be utilizing and putting our North American JV online. We do think that will lead to a gradual increase in the overall volume growth that we see. Therefore, for EV customers that we have, we’re talking about prismatic battery development, LFP, and also lower-cost LMR solutions so that we can strengthen our fundamental competitiveness within this area. On the ESS side, right now, for power grid-related market demand, we do believe that next year the overall demand growth will be above 60%. That would be a very high level of growth that we would expect. Since the ITC credits are something that will be maintained, we do not believe that there will be a large overall change or impact from this.

Because we do have local production capabilities and there continues to be a preference for non-Chinese providers, we do think that trend will continue going forward. Therefore, utilizing the better conditions that we have on the supply chain side, we do think that we can apply lower-cost materials and strengthen our cost competitiveness. At the same time, also utilize the competitive edge that we have as being the only company that is able to provide LFP ESS batteries on the ground. In light of the increasing demand or sharp increase in demand that we see going forward, we will continue to engage in our marketing activities and continue to win orders going forward.

Lee Eon-hee, Management Strategy, LG Energy Solution: 두 번째로 질문하신 내년부터 AMPC, ITC에 부과되는 PFE로부터의 원재료 조달 조건 신설에 따른 당사의 준비 현황 및 사업 영향에 대해서 말씀드리겠습니다. 당사는 이전부터 기존의 IRA 법안에 대응하여 전기차 소비자 보조금 수취를 위해 FEOC 요건을 충족시키는 공급망을 체계적으로 준비해 왔습니다. 금번에 신설된 PFE 조달 요건은 이전 FEOC 요건에 비해 다소 완화된 부분이 있어 이를 활용하면 공급망 체계를 최적화할 수 있을 것으로 보고 있습니다. 먼저, 금번 공급망 요건에 따라 연도별로 일정 비율을 PFE로부터 조달이 허용되고 PFE 대상이 직접 재료비로 한정되면서 일부 재료는 낮은 원가의 공급망을 활용할 수 있게 되었습니다. 또한 기존의 전기차 소비자 보조금 폐지에 따라 기존의 배터리 부품의 북미 현지 조달 의무와 FTA 국가로부터의 핵심 광물 소싱 의무가 사라지면서 공급망 운영에는 자유도가 생겼습니다. 그래서 상대적으로 단기간 내에 PFE 요건 충족이 어려운 자재들은 시간을 두고 준비할 수 있게 되었습니다.

이에 당사는 장기 공급이 가능하고 가격 경쟁력이 있는 기존 업체들을 효율적으로 활용하면서 이와 더불어 중장기적 관점에서는 공급망 업체를 이원화도 착실히 준비하여 PFE 요건 충족과 동시에 코스트 경쟁력을 확보할 수 있는 공급망 운영을 통해 수익성 개선에 힘쓰고자 합니다. 이상입니다.

Lee Chang-shil, CFO, LG Energy Solution: Yes, this is Eon Hee again. Maybe I can address your second question, which was the new conditions for PFE that have been installed, what the overall preparedness that we have or strategy that we have to achieve this and what we are going to do going forward. Even before the current changes take place, the company had been planning to create a supply chain that satisfied the previous FEOC conditions under the IRA that we required to be eligible for consumer subsidies. If you look at the new PFE-related procurement conditions, in some areas, we do actually believe that they are less demanding than the previous FEOC conditions. We do think that we can utilize this to optimize our supply chain. First, under the current supply chain conditions, if you look at manufacturers or producers, they will be allowed to procure a certain percentage from PFEs each year.

These conditions will be limited to direct material. We do think that this enables us to utilize some low-cost supply chains that are out there. In addition, since EV consumer subsidies will be abolished, we will no longer be required to source battery parts from the U.S. or critical raw materials from FTA countries. This provides us more discretion in the way that we operate our overall supply chain. At the same time, for materials that we will be sourcing to be compliant with the PFE conditions in the short term, that would be a bit more challenging. I do think that we would have a bit more time to prepare for the situation going forward. Thus, we can effectively utilize our existing suppliers, which have long-term supply capabilities and cost competitiveness.

Over the mid to long term, we would be able to dualize our supplier base and also ensure that we satisfy PFE conditions. At the same time, we can increase or strengthen our cost competitiveness and improve our profitability.

Lee Eon-hee, Management Strategy, LG Energy Solution: 다음 분 질문 주시기 바랍니다. 다음으로 질문해 주실 분은 UBS 증권의 팀 부쉬 님입니다. The following question will be presented by Tim Bush from UBS Securities. Please go ahead with your questions.

Thank you. I have two questions. The first is on ESS. Considering your new ESS LFP capacity in the U.S. that started operation in the second quarter, what is the outlook for further ESS capacity expansion? The second question is on overall North America demand. You had a very solid first half. What is the outlook for the second half of the year? Thank you.

Lee Chang-shil, CFO, LG Energy Solution: 네, 질문은 기회를 주셔서 감사드립니다. 저는 두 가지 질문을 드리고 싶은데요. 첫 번째는 ESS 관련된 질문입니다. 지금 2분기부터 새로운 LFP ESS COPPA가 북미에서 가동이 되기 시작했는데, 이로 인해서 ESS와 관련돼서의 향후 COPPA 증설 전망은 어떻게 보고 계시는지에 대해서 좀 알고 싶고요. 그다음에 두 번째는 저희가 북미 지역 전체 시장을 놓고 지금 상반기에 있었던 실적을 보게 되면 굉장히 견고한 어떤 판매가 이루어졌었던 걸로 보여지고 있는데요. 하반기는 어떻게 보고 계시는지 궁금합니다.

production know-how from China, we are stably producing and supplying. Recently, U.S. power grid demand has been growing faster than expected, so to maximize this business opportunity, we are working to stably ramp up the planned Michigan capacity of about 17 GWh this year. At the same time, we are actively reviewing the conversion of existing EV capacity at the site to ESS capacity. We are discussing building more than 30 GWh of ESS capacity in the U.S. by 2026. Also, from a product perspective, along with the current long cell LFP products, we are securing differentiated product competitiveness based on our SI capabilities. Furthermore, through material design innovation, we are also developing new high-capacity cells. We will continue to ensure stable business expansion and secure market share in the U.S. That is all.

For the first question that you asked, maybe I can address that. This is Kim Min-su from the ESS battery planning and management side. As you have mentioned, from May of this year, from our Michigan site, we have been commercially producing LFP batteries for ESS purposes. Utilizing the overall capabilities that we have accumulated in North America in conducting local production and operations, and adding to that also using the LFP production know-how that we have accumulated in China, we are able to stably produce and supply as of the current time. If we look at the demand in the U.S. for power grid-related ESSs, we do expect that versus our expectations, the market is growing at a faster pace. We do want to maximize the business opportunity that this does present.

This year, we had expected that overall approximately 17 gigawatt hours would be this capacity that we would have from Michigan’s capacity. This is something that we want to stably ramp up. At the same time, from the existing sites that we have, we are going to transition or review actively the possibility of transitioning some of the EV capacity that we have for ESS purposes. By doing this, by 2026, we want to reach 30 gigawatt hours or higher in total capacity. This is the overall target under which we are conducting discussions. In addition, from a product standpoint also, in addition to the current long-cell LFP products that we have and utilizing the SI capabilities that we have, we do want to provide a differentiated product competitiveness and at the same time also have innovation in terms of materials and designs.

We are in the process right now of developing new large capacity cells. By stably expanding our business within the U.S. and also gaining more market share, this would be the overall direction that we would be heading going forward.

customers making preemptive pull-ins. In the case of the second half, as consumer EV subsidies will end early after September, we expect major OEMs to adjust the pace of electrification and to operate inventory somewhat conservatively, so the momentum for sales growth will inevitably be limited for the time being. However, as I have continued to mention, customer demand for North America ESS is showing a much more solid overall situation than previously expected, and since we are the only company with local ESS production capacity, we consider this an unparalleled opportunity. Therefore, as I explained earlier, for a certain period, we plan to fill the empty space in automotive batteries with ESS.

In connection with this, we at LG Energy Solution are closely reviewing market demand and customer needs to discuss the most efficient CAPPA operation plans with customers, so the production timing and scale by site are being adjusted in real time to reduce investment and CAPPA loss. Fortunately, as North America ESS demand is very strong, we are operating in a way that maximizes facility efficiency by prioritizing the use of some CAPPA for ESS supply even at JVs, based on the strength of having North America production CAPPA, in consultation with customers. That is all.

This is the CFO, Lee Chang-shil, and maybe I can address your second question. I do think that although we have discussed this before, you still have a lot of questions about the second half outlook for the overall business. Maybe I can briefly provide an explanation. If you look at the first half U.S. shipments that we had, which was relatively strong, and if you look at the drivers behind that, first, I do think that it was that for our key customers, their overall EV sales performance in itself was better than they initially expected. That was one factor. However, added to that, I do think that on the customer side, there was a lot of preemptive pull-in demand that they had because there were a lot of variables that could take place, for example, a lot of policy uncertainties within the market.

If you look at the second half, because the EV subsidies will be going away after September, we do think that will lead the OEMs to pace themselves in terms of their overall electrification expansion. Added to that, we do think that relatively there may be more conservative inventory management as a result of that. Therefore, in terms of the growth momentum, I do think that for the time being, it cannot help but be somewhat limited. However, that having been said, on the North American ESS side and the overall customer demand there, as mentioned before, it is much stronger than we had expected. As the company, the only company that has local ESS production capabilities, we do think this would be a very attractive opportunity for our company.

As we have said for the time being, we do think that the void that we have on the EV side can be somewhat fulfilled with ESS demand that we would have going forward. For the company, we will continue to review the market demand and customer needs so that we can come up with the most efficient operations for the capacity that we have. This is something that we are in discussions with our customers about. Therefore, in terms of the production timing and sizes that we have for the different sites, this is something that we’re adjusting on a real-time basis to ensure that we can reduce any capacity loss or investment loss as much as possible. However, one thing that we do believe that is very fortunate is that for the ESS demand in North America, there is a very solid trend that we see of growth.

Therefore, we think that in North America, using the overall capacity advantages that we have with local production, we will continue to utilize some of the capacity that we have, including JV capacity, to cater to first the ESS-related demand that we see and to try to maximize the overall capacity efficiencies that we have for our operations.

Lee Eon-hee, Management Strategy, LG Energy Solution: 시간 관계상 마지막 질문 받겠습니다. 마지막으로 질문해 주실 분은 키움증권의 권준수 님입니다. The last question will be presented by Jin-soo Kwon from Kiwoom Securities. Please go ahead with your questions.

네, 질문 기회 주셔서 감사합니다. 키움증권의 권준수입니다. 저는 두 가지 질문 드리겠습니다. 첫 번째는 최근 유럽 시장 내에서 공급업체들의 점유율이 많이 빠지고 있는데, 이와 관련해서 유럽 시장 동향과 그리고 대응 전략 말씀 부탁드리겠습니다. 두 번째는 GM향 LFP와 각형 LMR 배터리 개발을 추진 중에 있는데, 개발 추진 현황과 그리고 향후 생산 전략에 대해서 말씀해 주시면 감사하겠습니다.

Lee Chang-shil, CFO, LG Energy Solution: Yes, thank you for the opportunity to ask questions. There are two questions that I would like to ask you. First is that if you look at the European overall volume trend that you see versus the U.S., it does seem to be that it is a bit sluggish. What chance do you see within the overall market in Europe, and how are you going to address that in terms of your strategy going forward? The second question that I have is that there is some development of LFP batteries and also some prismatic LMR batteries that you have for General Motors. What is the recent updates about that, and what would be your future strategy for production?

share of Chinese batteries. We believe these factors have had an impact. As such, with competition intensifying, the relatively slow trend in European-bound volume is expected to continue for the time being. However, in the second half, with major customers planning new model launches and our company also preparing to sequentially mass-produce new mid- to low-priced chemistry products, we are also working to convert some EV lines to ESS within the year and to accelerate production. We will continue to make efforts to improve the operating rate and profitability of the Poland plant. In addition, in the premium market where we can maintain competitiveness, we will actively seek order opportunities and respond to demand based on the competitiveness of our new cylindrical form factor, the 46-Series batteries. That is all.

For the first question that you have, which is about the European market in terms of the trends and what our strategy is, maybe I can address that. This is Chang-shil from Planning and Management. If you look at the overall performance that we have seen in the first half, though the EV market in Europe was relatively stronger than expected, if you look at our overall shipments versus that to the U.S., it was a bit sluggish. I do think that there are a couple of reasons behind that. One would be that in terms of the overall inventory management, we do think that our customers were a bit conservative on that. The second is that if you look at where the overall EV demand growth is coming in the European market, it seems to be on the mid to low end.

There are more Chinese batteries that are being used for EV vehicles in which the Chinese OEMs are trying to make inroads into Europe. We do think that that somewhat had an impact. As this type of competition does continue, we do think that, relatively speaking, the overall slower shipments that we see in volume for Europe will continue for the time being. However, in the second half of the year, if you look at our key customers, there are some new model launches that are being planned. In addition to that, from our side also, we do have some new low to mid-end chemistries that will go into commercial production one by one. That is something that is being prepared. In addition, within the year, we are planning to convert some of our EV lines for ESS purposes and also produce off of those lines.

We think that that will improve the overall utilization of our Poland capacity and the overall profitability that we see within this area. Going forward on a relative basis, we do, in the premium market in which we think that we have a stronger competitive edge, want to actively pursue more order opportunities based upon the new form factor for cylindrical batteries, which would be the 46-Series. Using that competitiveness, we want to seek more opportunities and try to address the demand within the market.

as planned without any issues. As recently reported in the media, mass production is diversifying not only form factors but also chemistries through the development of mid- to low-priced products such as LMR and LFP. By diversifying, we are reviewing various options based on mass production to provide product solutions tailored to segment-specific demand and customers’ diverse needs. Due to recent policy changes, there is ongoing uncertainty regarding EV demand, so it is somewhat early to mention specific plans regarding production timing, scale, and product specifications. However, the existing NCM pouch battery is currently being stably produced at the Ohio JV Phase 1, while for new products such as prismatic LMR and LFP, we plan to flexibly respond to demand and maximize capacity utilization at the Tennessee JV Phase 2, where gradual capacity expansion is planned. That is all.

The second question that you asked, which was the new developments that we have with GM and also our future product development strategy, maybe I can address this. From the Advanced Automotive Battery Planning and Management, this is An Min-gyu. Right now, with our strategic customer, which is GM, we do have a co-development of prismatic-type batteries that is going according to plan without any issues. As recently had been mentioned in the news, right now we are developing or looking at the development of lower to mid-end types such as LMR and LFP batteries. By this, we are trying to diversify not only our form factors but also chemistries so that we can cater to the demand in each of the different segments and also the needs that customers have to diversify products.

We want to be able to be in a position to provide a wide variety of product solutions. Using the commercial production as the general assumption, there are various options that are currently being reviewed. Due to the recent policy changes that we have seen within the market, there is some uncertainty with regards to EV demand going forward. As a result of that, I do think that it would be a bit too early for us to discuss the production timelines or the size and overall specifications of products that we are currently looking at. However, for the existing NCM pouch products, we are going to continue to produce that from our Ohio site, the JV phase 1, which is currently in operation and is producing very stably.

For the new prismatic-type LMRs or LFP or other new products that we have, the overall plan would be to produce them from the Tennessee JV phase 2, which would gradually expand its capacity going forward. In light of the overall demand backdrop, we do want to have flexibility in catering to the situation so that we can maximize our capacity utilization as much as possible.

Lee Eon-hee, Management Strategy, LG Energy Solution: 네, 감사합니다. 이것으로 LG Energy Solution의 2025년 2분기 실적 발표 컨퍼런스 콜을 모두 마치겠습니다. 경청해 주셔서 감사합니다.

Lee Chang-shil, CFO, LG Energy Solution: Yes, with this, we would like to wrap up our second quarter earnings conference call for 2025. Thank you once again for.

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