Third-quarter earnings and ESS contributions
As growth in the electric vehicle battery market slows, energy storage systems (ESS) are emerging as a new source of growth for South Korea's three battery manufacturers. LG Energy Solution posted record quarterly revenue in the third quarter as it expanded North American ESS production and increased shipments. Samsung SDI and SK On also expanded their business foundations by securing orders in South Korea's ESS central contract market. The third central contract market tender, whose results are due in November, is expected to provide another opportunity to assess each company's competitiveness.
LG Energy Solution's operating profit reached KRW 339.1 billion even excluding subsidies, drawing attention to the contribution from ESS. LG Energy Solution reported preliminary third-quarter revenue of KRW 9,643.4 billion and operating profit of KRW 756 billion this year. Revenue rose 59.0% year on year to a quarterly record, while operating profit increased 25.7%.
Particularly noteworthy are the results excluding production tax credits and other benefits under the US Inflation Reduction Act (IRA). Even after excluding KRW 416.9 billion in related benefits, the company recorded operating profit of KRW 339.1 billion. Although tax credits contributed substantially to the results, profitability without them provides evidence of an underlying improvement in operating performance. However, the operating margin excluding tax credits was 3.7%, making it premature to conclude that the profitability improvement is firmly established.
It is also worth noting that ESS was one of the factors supporting the improvement in earnings. Expanded local production capacity in North America and increased ESS shipments eased the fixed-cost burden. Higher EV battery shipments in Europe and the operation of joint-venture plants in North America also contributed to revenue growth. The third-quarter results therefore cannot be attributed to ESS alone. Nevertheless, it is significant that businesses outside EV batteries are becoming a larger source of support for earnings.
Cumulative orders and production strategies
Samsung SDI's cumulative orders total 629 MW and SK On's 284 MW as companies compete through their respective strategies. Across the first and second domestic ESS central contract market tenders, Samsung SDI secured 629 MW, SK On 284 MW and LG Energy Solution 215 MW. Samsung SDI led in cumulative volume, while SK On secured 284 MW out of the second tender's total 565 MW, making it the largest order winner in that round. LG Energy Solution also secured volume in both tenders, but its cumulative total was relatively small.
Order volumes indicate the foundation of each company's ESS business, but do not in themselves represent profit. It takes time for contracted volumes to translate into actual battery deliveries and revenue, while profitability can vary with production conversion costs, product prices and utilization rates. Ultimately, the key determinant of business performance will be whether cumulative orders translate into reliable deliveries and profits.
All three companies are also strengthening production and product competitiveness. LG Energy Solution is preparing to produce lithium iron phosphate (LFP) batteries for ESS in Ochang, North Chungcheong Province, while Samsung SDI is emphasizing integrated ESS solutions and safety technology. SK On is pursuing expansion of its ESS LFP battery business using its production base in Seosan, South Chungcheong Province.
Third tender and profitability
The third tender covers 1.18 GW, with profitability still to be demonstrated after orders are secured. The next competitive opportunity for the three battery manufacturers is this year's third ESS central contract market tender. The government is conducting a developer selection process covering a total of 1,180 MW, comprising 1,100 MW on the mainland and 80 MW on Jeju, with bids closing on November 11. This volume is more than twice the previous tender's 565 MW, creating greater opportunities to secure additional orders.
Simply securing a large volume will not be sufficient in this competition. Companies must address tender evaluation factors such as domestic production capabilities, materials supply chains and safety, while also being able to manufacture and supply the contracted volumes at appropriate costs. It remains to be seen whether LG Energy Solution's earnings recovery will lead to improved ESS profitability and whether Samsung SDI and SK On can turn their cumulative orders into actual profits.
Original Korean article: press9.kr
English brief by Korea Wind Intelligence, koreawindintel.com
