As profitability in the battery industry declines, reliance on the Advanced Manufacturing Production Credit (AMPC) is growing. However, LG Energy Solution is expected to face a short-term reduction in AMPC benefits, primarily due to a likely battery inventory adjustment by its key North American customer, General Motors (GM).
The AMPC, introduced under the U.S. Inflation Reduction Act, provides subsidies to companies manufacturing and selling batteries in the U.S. Battery cells are eligible for $35 per kilowatt-hour (kWh), while battery modules qualify for $10 per kWh.
According to data from the Financial Supervisory Service’s Data Analysis, Retrieval, and Transfer System, LG Energy Solution posted estimated third-quarter sales of 6.88 trillion won ($5.12 billion), with an operating profit of 448.3 billion won ($333 million). This represents a 16.4% decrease in sales and a 38.7% drop in operating profit from the same period last year. The company reported that 466 billion won ($346 million) of its operating profit came from AMPC benefits, marking its highest quarterly amount to date.
Excluding the AMPC, LG Energy Solution has been consistently reporting operating losses. In the third quarter, it recorded an operating loss of 17.7 billion won ($13 million) without the AMPC. In the second quarter, the company posted an operating profit of 195.3 billion won ($145 million), but 447.8 billion won ($333 million) of that came from AMPC, meaning it would have reported a loss of 252.5 billion won ($187 million) without the subsidy. Similarly, in the first quarter, it reported a profit of 157.3 billion won ($117 million), but excluding 188.9 billion won ($141 million) in AMPC, the company would have posted a loss of 31.6 billion won ($23 million).
While LG Energy Solution’s AMPC benefits have steadily increased, forecasts suggest a potential decline in the fourth quarter, possibly dropping to the low 400 billion won range. This is attributed to GM’s anticipated battery inventory adjustment, which could lead to reduced production of new battery cells.
Two of LG Energy Solution’s three U.S. battery plants are operated through its joint venture with GM, Ultium Cells. GM recently lowered its 2024 electric vehicle production and wholesale sales target from 250,000 units to 200,000 units. “Based on AMPC data, LG Energy Solution shipped enough batteries for about 250,000 EVs to GM in the first three quarters of this year, but GM’s cumulative sales only reached around 90,000 vehicles by September,” said Kim Hyun-soo, a researcher at Hana Financial Investment. “As GM adjusts its battery inventory, LG Energy Solution’s AMPC could decline over the next two quarters.”
Looking ahead, LG Energy Solution is expected to increase its AMPC benefits next year, as it plans to bring three new plants online in 2025, including Ultium Cells’ third plant in Michigan, a joint plant with Honda in Ohio, and another with Hyundai in Georgia.
Other South Korean battery makers are also projected to expand their AMPC benefits. Samsung SDI is set to begin receiving AMPC subsidies once its joint plant with Stellantis in Indiana (33 GWh) begins operations later this year. Depending on the plant’s start date, Samsung SDI’s AMPC could reach up to 800 billion won ($594 million) next year.
SK On is also expected to see a significant increase in AMPC benefits in 2024. KB Securities estimates SK On’s AMPC will grow from 410 billion won ($304 million) this year to 1.22 trillion won ($907 million) next year. Currently, SK On operates a standalone plant in Georgia (22 GWh), but it plans to bring two joint plants with Ford in Kentucky and Tennessee online next year.
