Green Energy Policy and the Reshaping of Global Battery Valuations: LG Energy Solution's Strategic Pivot Under the Inflation Reduction Act

The Inflation Reduction Act (IRA) has emerged as a seismic force in the global battery manufacturing landscape, reshaping valuations and strategic priorities for companies like LG Energy Solution. By offering tax credits tied to domestic production and clean energy innovation, the U.S. government has created a policy framework that both rewards and challenges manufacturers navigating a rapidly evolving market. For LG Energy Solution, the IRA has been a double-edged sword: a lifeline for profitability in the short term, while also exposing vulnerabilities in its long-term financial structure and market positioning.

The IRA's Financial Incentives: A Catalyst for Profitability

The IRA's Advanced Manufacturing Production Credit (AMPC) has directly bolstered LG Energy Solution's bottom line. Under Section 45X of the act, the company receives $35 per kilowatt-hour (kWh) for battery cells and an additional $10/kWh for modules produced and sold in the U.S., according to a Columbia study. These incentives have translated into tangible gains: in Q2 2025, LG Energy Solution reported an operating profit of KRW 492.2 billion, with KRW 490.8 billion attributed to North American production incentives, according to an LG press release. This represents a 31.4% year-on-year increase in operating profit, despite an 11.2% decline in revenue, the press release noted.

The financial impact is further amplified by the IRA's restrictions on Chinese-made batteries, which have elevated demand for U.S.-produced alternatives. LG Energy Solution's early investments in North American gigafactories-such as its ESS battery plant in the U.S.-have positioned it to capitalize on this shift. By 2026, the company aims to scale ESS production to 30 gigawatt-hours (GWh) annually, leveraging IRA-compliant supply chains to secure a dominant market share, according to the press release.

Structural Risks and Strategic Adjustments

However, the IRA's benefits come with caveats. S&P Global Ratings has highlighted LG Energy Solution's elevated debt-to-EBITDA ratio of 3.5x in 2025, driven by aggressive capital expenditures and volatile demand forecasts, as noted in an Investing.com report. While the company has reduced operating losses in Q2 2025 by achieving a surplus without subsidies for the first time in six quarters, as reported in an MK article, its reliance on tax credits remains a risk. For instance, excluding the AMPC, LG Energy Solution's operating profit in Q2 2025 would have been a mere KRW 1.4 billion, the MK article shows, underscoring margin pressures from low utilization rates and declining average selling prices.

The IRA's domestic content requirements-mandating 50% North American-sourced components in 2023 and rising to 100% by 2029-have also forced LG Energy Solution to restructure its supply chain. The company has secured IRA-compliant materials like lithium and LFP cathodes but faces challenges in scaling recycling infrastructure and reducing reliance on Chinese processing, the press release details. This mirrors industry-wide struggles, as noted in the Columbia study, which found that U.S. battery capacity is projected to grow from 700 GWh in 2022 to 1.2 TWh by 2023, yet critical mineral bottlenecks persist.

Industry-Wide Implications and Competitive Dynamics

LG Energy Solution's experience reflects broader trends in the battery sector. The IRA has spurred over $80 billion in U.S. manufacturing investments, with Tesla, Ford, and General Motors expanding gigafactories to qualify for tax credits, the LG press release reports. However, these gains are not evenly distributed. Companies without U.S. production capabilities-such as Chinese firms excluded by the IRA's Prohibited Foreign Entities (PFE) criteria-face declining market access. LG Energy Solution, by contrast, has leveraged its North American joint ventures and Indonesian nickel supply chains to strengthen its competitive edge, according to the press release.

Yet, the policy environment remains uncertain. S&P analysts warn that changes to IRA incentives or a slowdown in EV demand could erode LG Energy Solution's margins, particularly as it shifts production from EV batteries to ESS; the Investing.com report highlights these downgrade risks. This pivot, while prudent, requires significant capital outlays and carries risks if renewable energy adoption lags expectations.

Conclusion: A Policy-Driven Future

For investors, LG Energy Solution's trajectory under the IRA illustrates the duality of green energy policy: it offers transformative financial incentives but demands strategic agility to navigate regulatory and market volatility. The company's ability to balance short-term profitability with long-term sustainability-through innovations like dry electrode technology and ESS diversification-will determine its resilience in a sector increasingly shaped by policy as much as by technology.

As the U.S. continues to tighten its grip on clean energy supply chains, the IRA's legacy will hinge on whether companies like LG Energy Solution can turn policy-driven gains into enduring competitive advantages.