Battery Maker LG Energy Slashes Spending on EV Demand Risks

LG Energy Solution (LGES), a major player in the electric vehicle (EV) battery market, has announced plans to cut its capital expenditure by 20% to 30% in 2025. This move comes amidst slowing EV demand and intensifying competition in the global battery market. As an investor, it's crucial to understand the factors driving this decision and its potential impact on the broader EV industry.

Firstly, the slowdown in EV demand is a significant concern for LGES. The company reported an operating loss of 225.5 billion won ($157 million) for the quarter ending December 31, 2024, citing sluggish EV market conditions and client demand. This slowdown is evident in various regions, including Europe, the US, Japan, and Germany. For instance, automakers in Europe are holding off launching more affordable EV models until 2025, when vehicle CO2 targets across the bloc will toughen again (BNEF). In the US, President Donald Trump's suggestion to end the $7,500 federal EV tax credit could dampen short-term EV demand (LGES CFO). Meanwhile, in Japan and Germany, there has been a market slowdown and decline in EV sales due to highly-priced EV models and pricing systems (BNEF).

Secondly, the global EV market is becoming increasingly competitive, with Chinese manufacturers increasing their exports and automakers announcing plans for battery internalization. This competition is putting pressure on LGES and other battery suppliers. Chinese battery manufacturers have been aggressively expanding their production capacity and investing in research and development, allowing them to capture a larger share of the global battery market and put pressure on their competitors, including LGES.

Lastly, geopolitical risks and policy changes are shifting battery supply chains. The risk landscape around the EV value chain is complex, with new and unknown risks arising during EV construction, distribution, and disposal (Gearing up for the electric vehicles ecosystem- Risks along the value chain – Part II). Additionally, policy changes, such as tariffs on EVs imported from China and funding for local mineral production, are altering supply chain dynamics in the year ahead (Electric vehicle & battery supply chain: 5 things to look for in 2025).

As an investor, it's essential to monitor the evolving EV market dynamics and assess the potential impact of these factors on battery suppliers like LGES. While the company's decision to cut capital expenditure may weaken its competitive position in the short term, it could also be an opportunity for LGES to refocus its strategy and adapt to the changing market conditions. By diversifying its customer base, investing in R&D for next-generation batteries, and exploring new markets, LGES can mitigate the risks associated with slowing EV demand and maintain its market share.

In conclusion, the battery market is facing significant challenges, including slowing EV demand, intensifying competition, and shifting supply chains. As an investor, it's crucial to stay informed about these developments and assess their potential impact on battery suppliers like LGES. By understanding the factors driving LGES's decision to cut capital expenditure and monitoring the company's strategic moves, you can make more informed investment decisions in the dynamic EV market.