LG Energy Solution 的 ESS 訂單積壓達 160GWh，截至 2028 年大部分可供產能已獲預訂

LG Energy Solution reported third-quarter revenue of 9.6434 trillion won and operating profit of 756 billion won. Revenue increased 28% from the previous quarter, while the operating margin reached 7.8%. The company received 416.9 billion won in Advanced Manufacturing Production Credits (AMPC) under the U.S. Inflation Reduction Act (IRA). Excluding the credits, revenue was 9.2265 trillion won and operating profit was 339.1 billion won.

The main drivers of LG Energy Solution's third-quarter performance were increased energy storage system (ESS) shipments and the launch of new cylindrical battery production lines.

The earnings conference call covered four areas: third-quarter financial results, key business achievements, market trends and response strategies, and a question-and-answer session.

Participants included Executive Vice President and Chief Financial Officer (CFO) Lee Chang-sil; Managing Director Lee Sang-hyun, in charge of corporate planning and management; Managing Director Ahn Min-kyu, responsible for automotive battery planning and management; Managing Director Noh In-hak, responsible for small battery planning and management; Managing Director Jung Jae-wook, responsible for ESS battery planning and management; accounting representative Park Sung-pil; finance representative Kim Young-jae; and corporate strategy representative Lee Yeon-hee.

The following is the full transcript of the conference call.

[Third-Quarter Business Results]

LG Energy Solution's consolidated revenue for the third quarter of 2026 increased 28% from the previous quarter to approximately 9.6 trillion won. The growth was driven by a sharp increase in ESS shipments, alongside volume growth in both electric vehicle (EV) pouch and cylindrical battery products.

The automotive battery business recorded double-digit revenue growth from the previous quarter. Shipments of high-voltage mid-nickel batteries to European customers increased by more than 10%, while operations at North American joint ventures (JVs) ramped up and demand from Asian customers remained solid. In the small battery business, shipments of 2170 cylindrical batteries (21mm in diameter and 70mm in height) to strategic EV customers continued to increase despite a reduction in the information technology (IT) pouch business. Shipments of 46-series cylindrical batteries (46mm in diameter) also remained solid, supported by strong sales of new models from North American customers, keeping revenue broadly in line with the previous quarter. In the ESS battery business, the company gradually eased capacity bottlenecks in pack and LINK production. As a result, shipment volume increased more than 60% from the previous quarter, raising ESS's share of total revenue to the low-30% range.

North American production incentives reflected in revenue and operating profit rose 73% from the previous quarter to 416.9 billion won, supported by increased sales of products for power grid applications.

Third-quarter operating profit reached 756 billion won, with an operating margin of 7.8%. The improvement reflected higher utilization at the company's Polish site, supported by solid European customer demand; continued shipments of cylindrical products with relatively strong profitability; improved productivity at new ESS mass-production sites; and one-time volume compensation payments from customers. Non-operating items recorded a loss of 987.2 billion won. Although the strengthening of the Korean won against the U.S. dollar at quarter-end generated foreign-exchange translation gains on foreign-currency borrowings, these were outweighed by valuation losses on derivatives related to foreign-currency bonds, interest expenses and impairment losses on small-format IT pouch assets. The company posted a pretax loss of 231.2 billion won and a net loss of 296.9 billion won.

Total assets stood at 70.3 trillion won at the end of the third quarter of 2026, down approximately 7.6 trillion won from the end of the previous quarter, mainly due to the decline in the Korean-won value of foreign-currency assets following exchange-rate movements. Liabilities fell approximately 3.2 trillion won to 44.3 trillion won, reflecting foreign-exchange effects and the repayment of some foreign-currency debt. Equity declined approximately 4.3 trillion won to 26 trillion won. The debt-to-equity ratio was 171%, the debt ratio was 98%, and the net debt ratio was 82%.

The company generated approximately 2 trillion won in earnings before interest, taxes, depreciation and amortization (EBITDA) during the quarter. However, cash at the end of the third quarter fell 2.9 trillion won from the previous quarter to 4.3 trillion won. The decline reflected capital expenditure (CAPEX) of approximately 1 trillion won, broadly in line with the previous quarter, higher working capital requirements, including accounts receivable resulting from business expansion, and debt repayments.

[Key Achievements in the Third Quarter]

In the ESS business, LG Energy Solution secured additional projects from existing power grid customers and signed its first direct battery energy storage system (BESS) supply agreement with a major technology company, strengthening its position in the artificial intelligence (AI) data center market. The company said the agreements demonstrated its ability to deliver on schedule using North American production facilities, its stable operating experience and its supply chain management (SCM) capabilities. Its ESS order backlog stood at approximately 160 gigawatt-hours (GWh) at the end of the third quarter. The company is also discussing new project supply agreements with multiple utilities and hyperscalers and expects additional order momentum to continue in the fourth quarter.

In September, LG Energy Solution became the only South Korean battery maker selected as a BESS partner by NVIDIA, leveraging its high-capacity lithium iron phosphate (LFP) cells and advanced power conversion system (PCS) capabilities. The selection demonstrated the competitiveness of its products in meeting AI data center requirements for high reliability, long service life and energy efficiency, while providing a foundation for further business expansion.

In the EV business, the company signed an agreement to expand supply volumes based on its next-generation high-voltage mid-nickel products, securing a stable revenue base for mid-priced solutions in the European EV market.

On the operations front, the North American ESS business brought an additional cell production line online during the third quarter and began operating expanded capacity at a new LINK line, improving production stability and supply responsiveness. The company also activated additional capacity for cylindrical batteries used in EVs to meet solid customer demand. Its U.S. joint venture with General Motors (GM) resumed operations in August, contributing to a meaningful improvement in overall capacity utilization from the previous quarter.

The company also made progress in strengthening its supply chain. It reinforced its mid- to long-term partnership with an existing LFP cathode materials supplier while signing a purchasing agreement with a new supplier to improve compliance with non-Prohibited Foreign Entity (Non-PFE) requirements. It also secured long-term supply agreements for locally sourced lithium from upstream suppliers in Canada and the United States, establishing a more stable regional raw materials procurement base.

[Market Trends and Response Strategies]

In the United States, a key strategic market, the government strengthened supply chain security requirements for major power grid equipment, including BESS inverters, through an executive order issued in August. The measures outlined restrictions on the purchase and installation of equipment from designated foreign entities considered security threats, further reinforcing the direction toward supply chains excluding China in the U.S. energy market. While the specific scope and implementation criteria remain to be determined, LG Energy Solution expects its competitiveness as a Non-PFE company with local production capacity to become more prominent.

Meanwhile, requirements under the Corporate Average Fuel Economy (CAFE) program, which sets average fuel economy standards for automakers, were eased by approximately 30% compared with previous levels, reducing policy-driven momentum behind the transition to EVs. However, the company expects the impact of the revised standards on EV demand to be limited and believes demand for hybrid vehicles will remain solid in the near term.

In Europe, revised recommendations for the Industrial Accelerator Act (IAA), announced in September, narrowed the definition of local production from a scope that included third countries such as free trade agreement (FTA) partners to one centered on the European Union's 27 member states. The cost-gap threshold for exemptions from local sourcing requirements was raised to 40%, strengthening localization requirements across both manufacturing and supply chains. An increasing number of European countries are also approving autonomous driving programs, which the company expects to help sustain recent growth momentum in EV sales.

The prolonged period of high oil prices resulting from the ongoing U.S.-Iran conflict is expected to improve the relative economic competitiveness of EVs compared with internal combustion engine vehicles and increase the need for energy independence across regions, supporting battery demand over the medium to long term. At the same time, prices of major raw materials, including lithium, have been stabilizing at lower levels, which is expected to ease some cost pressures.

In response to these market changes, LG Energy Solution will further strengthen its business competitiveness by optimizing regional operations and implementing strategic supply chain management.

In North America, the company plans to expand production capacity to meet growing ESS customer demand. By the end of this year, it expects to have more than 50GWh of pouch cell capacity. Including new prismatic battery lines, total capacity is expected to reach approximately 70GWh by the end of next year. At its Arizona facility, the company's first cylindrical battery production base in North America, preparations are underway to begin operating 46-series lines by year-end. The company plans to fulfill previously secured orders in stages. At the same site, it also plans to begin supplying tabless 2170 batteries for hybrid electric vehicles (HEVs) in 2027.

In Europe, LG Energy Solution plans to strengthen its production portfolio in response to policies promoting local battery manufacturing and supply chains, as well as the trend toward greater diversification of EV models. Its Polish production capacity has historically focused on EV pouch batteries, but some lines have been converted to ESS production since last year. The company also plans to establish local 46-series production capabilities beginning in 2029. It will address diversified original equipment manufacturer (OEM) requirements with mid-priced pouch-based solutions and high-nickel cylindrical products.

At its Ochang mother plant in South Korea, the product currently receiving the most intensive development focus is the sodium-ion battery. The company plans to begin sample production within this year and ship test products to North American customers next year. It is also preparing to begin mass production of a new LFP-based tabless 2170 product in the first half of 2027.

LG Energy Solution will continue upgrading its global SCM system to respond more flexibly to market changes. In North America, it will continue diversifying LFP cathode material suppliers to secure a supply chain that complies with regulations, while expanding its pool of Non-PFE suppliers for anode materials, electrolytes and other components. In Europe, it will pursue localization of key materials and components to strengthen structural cost competitiveness.

The battery industry has faced new challenges amid changing policy environments and geopolitical conflicts. To respond actively and efficiently, LG Energy Solution will further strengthen its strategy of prioritizing selected businesses and concentrating resources, aiming to operate more efficiently with limited resources. Under this approach, the company will take a more rigorous look at quality, cost and delivery (QCD), focusing on product quality, fundamental cost competitiveness and profitability improvements from an SCM perspective aligned with customer needs. It will refine its strategy and implement structural changes decisively, seeking to deliver tangible results and maintain market confidence.

[Question-and-Answer Session]

Q. What is the outlook for fourth-quarter earnings and the broader business outlook for next year? Also, how is the company preparing to meet North American Prohibited Foreign Entity (PFE) requirements as it expands LFP production? There are market concerns because a major cathode materials supplier is linked to China. Could you provide more details?

A1. In the fourth quarter, we expect ESS shipments to increase approximately 40% from the previous quarter as we actively respond to North American demand. Shipments of high-voltage mid-nickel pouch products to European customers and cylindrical batteries are also expected to remain solid through year-end. With additional output from North American JVs that began operations in the third quarter, we expect consolidated revenue to grow approximately 10% from the third quarter.

From a profitability perspective, improving overall capacity utilization and ensuring stable ramp-ups at individual production sites will be important, and we will continue working toward those goals. However, fourth-quarter profitability will inevitably moderate to some extent. This reflects the high base created by the disappearance of one-time benefits recognized in the third quarter, as well as initial fixed-cost burdens associated with preparations to bring additional ESS capacity online at the Honda JV in the fourth quarter.

For next year, we are currently developing our business plan based on market demand. Several variables that could affect end-market conditions remain, making it difficult to provide a detailed forecast at this stage.

Broadly, we expect meaningful volume growth in ESS, supported by the order base already secured in North America. In small batteries, we anticipate stable growth from cylindrical EV batteries supplied to strategic customers, as well as sales for new 46-series applications. EV pouch batteries should also grow across the business, supported by mid-priced products and additional North American EV production.

We will strengthen our competitiveness in key products aligned with market demand while focusing on operational efficiency, maximizing utilization of existing capacity and improving structural cost competitiveness. Through this strategy of selective investment and resource allocation, we will prioritize fundamental improvements in profitability.

A2. To qualify for U.S. production tax credits, it is essential to establish a supply chain that meets the requirements governing the proportion of PFE materials in direct material costs, measured through the Material Assistance Cost Ratio (MACR).

The permitted share of PFE materials is becoming more restrictive each year, declining from 40% this year to 35% or less next year. We have developed detailed sourcing strategies for each material category and believe preparations are progressing without major issues.

Cathode materials account for the largest share of material costs. In addition to a recently contracted domestic supplier, we have secured sourcing options from multiple Non-PFE suppliers, allowing us to meet the requirements reliably.

For other major materials, including anode materials, separators and electrolytes, we are actively identifying additional suppliers beyond our existing Non-PFE supply network.

We expect regional supply chain regulations to continue tightening. Previously, our strategy focused on globally optimizing operations primarily from a cost competitiveness perspective. Going forward, we will place greater emphasis on supply chain stability, taking global policies and geopolitical risks into account.

We will expand our pool of Non-PFE suppliers by comprehensively evaluating partners' cost competitiveness, technological capabilities and ability to meet volume requirements. Over the longer term, we will also identify local partners and expand localization efforts to build supply chains that are resilient to geopolitical risks.

Q. What is the outlook for ESS profitability and what measures are being taken to improve it? What is the status of additional ESS orders in North America, and what are the growth drivers going forward?

A1. This year, we have been gradually establishing a production system aligned with market demand by converting EV production lines to ESS manufacturing. Our primary focus has been meeting rising customer demand, particularly in North America.

However, ramping up production simultaneously across multiple sites this year has not been entirely smooth. Despite internal efforts to reduce fixed costs, profitability improvements have been somewhat slower than market expectations.

The ramp-up of cell production lines, which we targeted to reach 50GWh by the end of this year, is now approaching completion. We also plan to expand pack and LINK capacity further in the fourth quarter following the additions made in the third quarter. This should stabilize production capacity and gradually ease fixed-cost burdens.

Going forward, we will focus on reducing raw material and logistics costs through more efficient utilization of secured ESS capacity and diversification of material sourcing.

We will also optimize our customer portfolio by increasing the proportion of projects for AI data centers and system integrator (SI) customers. At the same time, we will pursue higher-capacity cells and systems to improve cost competitiveness. Through these measures and stronger structural competitiveness, we aim to achieve meaningful improvements in ESS profitability.

A2. The North American ESS market is experiencing rapid demand growth, while favorable policy conditions for Non-PFE suppliers are driving a sharp increase in customer demand for locally manufactured battery cells.

Based on currently planned production capacity, most of the available volume through 2028 has already been committed. We are actively discussing additional supply agreements, primarily for volumes beyond that period.

Customers currently in discussions include existing power grid and utility customers, AI data center operators seeking BESS capacity through those customers, and hyperscalers looking to purchase BESS systems directly for behind-the-meter (BTM) applications.

Expected demand exceeds the capacity we can currently supply. We therefore plan to allocate future available capacity efficiently, prioritizing projects of strategic importance.

Q. Could you provide more details about additional order opportunities for 46-series cylindrical batteries? What is the competitiveness and order outlook for tabless 2170 batteries?

A1. In addition to more than 440GWh of orders already secured from a broad range of customers, from traditional OEMs to EV startups, we are currently in discussions with multiple global automakers regarding additional contracts.

We expect to secure meaningful orders in the near future. By leveraging our product competitiveness and regional manufacturing capabilities, we will strengthen our position as a leading 46-series battery supplier and continue expanding our customer portfolio.

A2. Compared with conventional products, tabless 2170 batteries offer lower heat generation and electrical resistance, providing advantages in safety and high-power performance. These characteristics make them suitable for a wide range of applications, including HEVs, battery backup units (BBUs) and robots.

We are already mass-producing power tool batteries at our tabless production line in Ochang.

For LFP-based 2170 batteries designed for BBU applications, we are preparing for mass production in the second quarter of next year. Production of HEV batteries is scheduled to begin at our Arizona facility in the United States toward the end of next year.

In particular, our LFP 2170 products have demonstrated superior performance in thermal safety tests compared with nickel-cobalt-manganese (NCM) products and have received positive feedback from customers.

We will respond proactively to customer requirements and market demand to establish a competitive position quickly in these emerging markets.

Q. The company's debt-to-equity and debt ratios have recently increased. Could you update us on plans to improve financial stability and funding requirements for next year? Also, considering the direction of Europe's IAA policy, what is the company's medium- to long-term strategy for securing market share in Europe?

A1. In the past, we made investments in new production capacity ahead of market demand. We secured the necessary funding through stable financing channels, including low-interest, long-term borrowings backed by policy financing programs and the issuance of Korean-won and foreign-currency corporate bonds.

Most of our major investments have now been completed, and CAPEX has declined significantly since last year. We also expect operating cash flow to increase going forward.

We will prioritize using improved cash flow to repay debt. In parallel, we will pursue additional funding through asset monetization and other measures. These efforts will help reduce debt and financial expenses, improve our financial indicators and strengthen overall financial stability.

Regarding funding plans, our headquarters does not intend to raise additional debt this year. Some overseas subsidiaries are scheduled to draw down additional portions of previously committed credit facilities.

Next year, we plan to raise only the minimum amount of funding necessary for refinancing existing debt and meeting working capital requirements. We will maintain our debt-reduction strategy by using additional resources generated through stronger operating cash flow and lower investment requirements.

A2. Although Europe's policy framework has not yet been finalized, the revised IAA recommendations suggest tighter requirements for foreign direct investment and local production. We expect local manufacturing capabilities to become increasingly important for batteries and other key materials.

European OEMs are also diversifying their battery supply chains. This should gradually increase sourcing demand for non-Chinese suppliers with established local manufacturing operations, such as LG Energy Solution. We believe the business environment is becoming increasingly favorable.

We have built a local mass-production base and materials and components supply chain centered on our Polish operations, allowing us to respond quickly to customer demand for locally manufactured batteries.

European customers have recently shown growing interest in high-voltage mid-nickel batteries. In addition, depreciation expenses at our Polish subsidiary have declined significantly, which we believe will give us a pricing advantage over competitors.

Beyond high-voltage mid-nickel products, we will actively pursue new orders by leveraging a diversified portfolio that includes LFP and cell-to-pack (CTP) solutions. Through these efforts, we aim to gradually expand our market share in Europe.