LG Energy Solution's French Recycling Venture Faces Headwinds as Shares Slide 4%

LG Energy Solution (051910.KS) and French recycling giant Derichebourg announced plans to build a €200 million battery recycling plant in Bruyères-sur-Oise, France, targeting 20,000 tons of annual processing capacity by 2027. The venture aims to secure recycled materials for EV batteries while complying with EU mandates requiring 16% cobalt and 6% lithium recycling rates by 2031. Yet, shares of LG Energy Solution fell 4% in April 2025 amid lingering concerns over operational challenges, financial strain, and macroeconomic risks.

The Strategic Bet on Circular Supply Chains

The joint venture marks LG Energy Solution’s first recycling facility in Europe, a critical step to meet the EU’s stringent battery regulations and reduce reliance on volatile raw material markets. The plant will process end-of-life EV batteries and production scrap from LG’s Polish factory, discharging, dismantling, and shredding them into “black mass”—a material rich in lithium, nickel, and cobalt. While the pre-processing phase begins in 2027, post-processing (to refine pure metals) will occur at an undetermined location, pending cost and regulatory analysis.

The partnership leverages Derichebourg’s network of 200+ French collection sites and LG’s 69,600+ battery patents, creating a closed-loop system to stabilize supply chains. This is particularly urgent as China controls 16.5% of global lithium reserves and 52% of the EV battery market, while U.S. tariffs on Chinese imports threaten global competitiveness.

Why the 4% Share Decline?

Despite the strategic merits, LG Energy Solution’s shares dropped 4% in April, reflecting broader investor skepticism. Key drivers of the decline include:

1. Deteriorating Financial Health:
2. The company reported a KRW225.5 billion operating loss in Q4 2024 (vs. analyst forecasts of a KRW16.4 billion profit). Sales fell 19% year-on-year as EV demand slowed.

3. Without a KRW458 billion U.S. tax credit, Q1 2025 would have posted an operating loss of KRW83 billion.

4. Credit Downgrade:

5. S&P Global lowered LG Chem and LG Energy Solution’s credit ratings to BBB in March . The ratings agency cited debt levels expected to hit KRW18 trillion by 2025 (up from KRW12 trillion in 2024), raising borrowing costs and deterring investors.

6. Geopolitical Uncertainties:

7. U.S. policy shifts under the Trump administration threaten EV incentives and tariffs on Chinese imports, which could disrupt LG’s supply chain.
8. EV battery prices dropped 20% in 2024 due to overcapacity, squeezing margins as automakers like GM scaled back orders.

Balancing Long-Term Gains with Near-Term Pain

While the Bruyères-sur-Oise plant positions LG Energy Solution to meet EU recycling targets and reduce raw material costs, its financial and operational hurdles remain significant. The facility’s 2027 start date means benefits are years away, while investors grapple with immediate concerns:

• Debt and Capex: LG Energy Solution’s debt-to-EBITDA ratio is projected to hit 3.5x in 2025, up from 1.5x in 2022. Capital expenditures remain high as the company pivots to energy storage systems (ESS) and LFP batteries.
• Market Competition: Chinese firms like CATL and BYD dominate global battery markets, with LG holding only 11.2% of the EV battery share in 2024.
• EV Demand Volatility: Europe’s EV sales fell 8% in Q1 2025 due to subsidy cuts and rising living costs, while U.S. demand faces tariff-driven headwinds.

Conclusion: A Risky But Necessary Pivot

LG Energy Solution’s joint venture with Derichebourg is a strategic necessity to navigate EU regulations and secure recycled materials, but its execution hinges on overcoming near-term challenges. The plant’s 20,000-ton capacity aligns with EU targets, and its closed-loop design could reduce raw material costs by 15-20% over time. However, with shares down 4% and debt levels soaring, investors must weigh long-term sustainability gains against immediate financial risks.

Key data points underscore the dilemma:
- The EU’s recycling mandates require 26% cobalt and 15% nickel recovery by 2036, which the plant could help achieve.
- LG’s Q1 2025 operating profit (KRW375 billion) relied heavily on tax credits, highlighting weak core profitability.
- Competitors like CATL are expanding recycling facilities in China and Europe, intensifying competition.

For now, LG Energy Solution’s stock reflects investor skepticism about its ability to navigate a fragile EV market and high debt burden. The Bruyères-sur-Oise plant is a step forward, but the road to profitability—and investor confidence—remains fraught with potholes.