LG Energy Solution's Crisis Management and Its Impact on Investor Confidence

In the volatile landscape of the electric vehicle (EV) battery sector, LG Energy Solution has emerged as both a bellwether and a case study in corporate resilience. The company’s journey since its 2022 spinoff from LG Chem has been marked by governance controversies, operational pivots, and a recalibration of investor expectations. As the EV market grapples with waning demand and geopolitical headwinds, LG Energy Solution’s crisis management strategies—rooted in corporate governance reforms and operational diversification—offer critical insights into how firms can navigate systemic risks while rebuilding trust.

Corporate Governance: From Controversy to Reform

The spinoff of LG Energy Solution in 2022, classified as a “captive” spinoff where the parent company retained full ownership, initially triggered a 30% decline in LG Chem’s stock price [3]. Critics argued that the move prioritized the interests of controlling shareholders over minority investors, a concern amplified by Korea’s long-standing governance challenges. However, 2025 has seen a shift. The Lee administration’s corporate governance reforms—amending the Commercial Act, enhancing fiduciary duties for directors, and introducing measures to protect minority shareholders—have begun to reshape the landscape [2]. These changes, coupled with LG Energy Solution’s own governance adjustments, have helped the company’s stock rebound 68.3% on its listing day [1].

Foreign investors, once skeptical of Korean governance practices, are now cautiously optimistic. A 2025 investor feedback report notes that while past inconsistencies have eroded trust, the company’s alignment with international governance standards—such as transparent communication and shareholder rights—has improved perceptions [2]. This is critical: the “Korea Discount,” a historical undervaluation of Korean firms due to governance risks, is slowly narrowing as firms like LG Energy Solution demonstrate a commitment to reform.

Operational Resilience: Navigating Market Volatility

LG Energy Solution’s operational strategies in 2025 reflect a dual focus on vertical integration and geographic diversification. The company’s $1.4 billion investment in a lithium iron phosphate (LFP) battery factory in Michigan—a technology previously dominated by Chinese producers—highlights its pivot toward onshoring [2]. This move not only aligns with U.S. Inflation Reduction Act (IRA) incentives but also mitigates supply chain risks by securing lithium from Australia and the U.S. [1].

Despite these efforts, the company faced headwinds in Q2 2025. While operating profit surged 152% year-over-year to 492 billion won ($360.94 million), revenue fell 9.7% due to sluggish EV demand and falling lithium prices [1]. The CFO attributed this to “evolving tariff policies and cost pressures in key markets like the U.S., Europe, and the U.K” [2]. Yet, the company’s ability to boost profitability through cost efficiency and product mix optimization—without relying on North American production incentives—demonstrates operational agility [3].

Investor Confidence: A Delicate Balance

The interplay between governance and operations has directly influenced investor sentiment. LG Energy Solution’s credit risk profile, for instance, has stabilized: default probability dropped from 1.719% in July 2022 to 1.009% by June 2025, bolstered by R&D investments and strategic partnerships [4]. Meanwhile, the company’s expansion into energy storage systems (ESS) and AI data center batteries—announced in Q2 2025—has signaled long-term value creation [3].

However, challenges persist. The Ultium Cells joint venture with General Motors, delayed by high interest rates and shifting demand, underscores the fragility of large-scale projects in a volatile market [2]. Investors remain wary of overreliance on U.S. policy tailwinds, particularly as global EV demand slows.

Conclusion: A Path Forward

LG Energy Solution’s crisis management strategy—combining governance reforms, vertical integration, and geographic diversification—has mitigated some of the sector’s most pressing risks. Yet, the company’s success will ultimately depend on its ability to sustain profitability amid falling battery prices and geopolitical uncertainties. For investors, the key takeaway is clear: firms that align governance with global standards and adapt operations to market realities will outperform in the EV transition. As the KOSPI 5000 Task Force and the Lee administration continue to refine governance frameworks, LG Energy Solution’s trajectory offers a blueprint for resilience in an era of systemic disruption.

Source:
[1] Do “captive” spin-offs create value? Evidence from Korea [https://www.sciencedirect.com/science/article/pii/S1544612325010840]
[2] Investor feedback on regulatory and corporate governance reform [http://kcgf.net/33/?bmode=view&idx=167459066]
[3] LG Energy Solution Releases 2025 Second-Quarter Financial Results [https://www.morningstar.com/news/pr-newswire/20250724cn37558/lg-energy-solution-releases-2025-second-quarter-financial-results]
[4] LG Business Solutions Hong Kong - Credit Risk Analysis [https://martini.ai/pages/research/LG%20Business%20Solutions%20Hong%20Kong-84cb860a18c0b774e3a00ee203a23c2d]