LG Energy Solution broke a three‑quarter losing streak in the June quarter, returning to the black as its energy storage business exploded and next‑generation cylindrical batteries won fresh orders. Speaking on the company’s second‑quarter earnings call, CFO Lee Chang‑sil declared that the top priority is now “to secure the profitability of the ESS business on an ex‑IRA basis by the fourth quarter” – a sign that the steep ramp‑up costs that initially squeezed margins are expected to ease.

Financial Snapshot: A Turnaround on Surging ESS

Second‑quarter revenue jumped 15% from the previous three months to 7.6 trillion won, propelled by a 30% sequential increase in ESS shipments, a doubling of cylindrical volumes year‑on‑year, and a rebound in European automotive demand for mid‑nickel and LFP chemistries. After three consecutive quarters in the red, operating profit reached 113.3 billion won, yielding a slim 1% margin.

Financial MetricQ2 2026QoQ ChangeRevenueKRW 7.6 trillion+15%Operating IncomeKRW 113.3 billionTurned to profitOperating Margin1%-AMPC (IRA Credits)KRW 241 billion+27%Net LossKRW 328.6 billion-EBITDA~KRW 1.3 trillion-CapEx~KRW 1 trillion-40%CashKRW 7.2 trillion+KRW 3.4 trillion

First‑half revenue totalled 14.1 trillion won, a more than 10% increase year‑on‑year.

The net loss of 328.6 billion won stemmed largely from non‑operating items – interest expense and asset disposals – and not from the core business. With the sale of a Honda JV building injecting about 3 trillion won, cash reserves swelled to 7.2 trillion won, giving the company ample firepower for its aggressive capacity build‑out.

ESS Becomes the Engine: “Revenue More than Quadrupled”

The spotlight belonged to the energy storage division, where revenue more than quadrupled from the prior‑year period and now represents the “high‑20%” of total company sales, CFO Lee noted. Five North American cell production sites are ramping simultaneously, and by year‑end the company will command more than 50 GWh of ESS production capacity on the continent. Management is converting existing EV pouch lines to ESS, a process set to be completed within the year.

“We secured more than 3 trillion won in new orders in the first half, including an AI data center project for a hyperscaler end‑user,” Lee said. “In May and June, the GM‑JV Phase II and the Honda‑JV sequentially kicked off ESS lines, and that momentum will continue.”

For the current quarter, ESS shipments are forecast to climb at least 50% from the second‑quarter level. By the second half, total ESS output will be double that of the first six months – a pace that underpins the company’s confidence in delivering the full‑year 20% revenue growth target originally guided.

Cylindrical: 2170 Stays Hot, 46‑Series Orders Surge 60%

The smaller battery division, dominated by cylindrical cells, continued to ride the success of a strategic customer’s new EV model, which drove robust 2170 demand. Shipments of next‑generation 46‑series cells – ranging from 4680 to 46120 – jumped more than 60% quarter‑on‑quarter as production ramped in Ochang, South Korea. Noh In‑hak, head of Mobility & IT Battery Planning, told analysts that the “momentum is something that will continue into next year.”

Arizona will add significant scale: the 46‑series line there, scheduled to begin mass production in the fourth quarter, boasts 50% higher equipment efficiency than the Ochang facility, enabling the company to pursue fresh orders from multiple OEMs. Noh confirmed that the Nanjing cylindrical plant is running at full capacity to meet Asian demand, and the company is developing tabless 2170 cells for emerging applications such as BBU (backup battery units) for data centers and for robotics, with a dedicated mass‑production line being built in Ochang.

Automotive Batteries: Europe Offsets North America Slump

While North American EV demand remained weak, Europe provided relief. High‑voltage mid‑nickel and LFP products shipped to European customers saw double‑digit volume growth, and Asian clients also increased uptake of high‑nickel chemistries. Ahn Min‑kyu from Advanced Automotive Battery Planning confirmed that the GM joint venture’s Phase 1 facility, suspended in the first half to align with the customer’s inventory adjustments, will restart production in the third quarter. Ramp‑up will be gradual, “with Q4 volume much larger than Q3.”

In Europe, demand for mid‑to‑low‑end solutions is driving a significant jump in the second half, which will lift utilisation rates at the Polish plant. The company also aims to win new pouch orders for second‑generation mid‑nickel products that offer improved driving range and faster charging, especially in Europe.

Guidance and Margin Challenges

CFO Lee was notably bullish on the near‑term trajectory. “For the third quarter, total revenue will grow by more than 20% quarter‑on‑quarter,” he said, “with ESS shipments up at least 50%.” The full‑year 2026 revenue growth of around 20% is “something that we will very comfortably be able to achieve.”

However, the rapid capacity expansion – not just cells but also pack and LINC (container) lines – is inflating start‑up costs and squeezing margins in the short term. Lee acknowledged that “for the time being, that will have an impact,” but pledged that the company is “focusing on stabilizing the overall production system” and implementing company‑wide cost savings. The ultimate goal is to deliver ESS profitability without relying on IRA tax credits by the final quarter of 2026.

Chinese Competition and the BTM Opportunity

Analyst questions zeroed in on the threat from Chinese ESS makers. Lee Yeon‑hee, Director of Business Strategy, argued that the PFE (prevailing foreign entity) regulations make it “very challenging for them to secure any AMPC or ITC subsidies,” limiting their market‑share expansion in North America. LG’s three‑pronged response: aggressively expanding production capacity by converting EV lines and building pack/container capacity; strengthening product competitiveness with prismatic LFP mass production from 2027 and sodium‑ion battery verification at the hundreds‑of‑megawatt‑hour scale; and differentiating through system integration, operations & maintenance, and software that can support energy trading –“converting from a hardware supplier to a higher‑margin software‑based supplier.”

A newer and potentially larger opportunity lies in the behind‑the‑meter (BTM) ESS market, where AI data center operators seek on‑site power infrastructure to sidestep grid bottlenecks. Lee Yeon‑hee described the BTM segment as “a very important market opportunity” because it requires non‑PFE players. “We are actively discussing BTM projects with big tech companies and developing solutions optimized for the next‑generation AI DC standard platform,” she said. On the policy front, the U.S. Federal Energy Regulatory Commission has signaled openness to BTM solutions, further stoking demand.

Order Pipeline and Next‑Gen Batteries

Pressed to quantify the order pipeline, Lee Sang‑hyun of Planning & Management demurred due to disclosure regulations but offered colour: in ESS, the company is in “active discussions for additional large‑scale, mid‑ to long‑term orders” with existing customers and with new utility and developer clients targeting AI data‑center projects. On the EV side, besides pursuing mid‑nickel/LFP pouch orders in Europe and Asia, LG is pitching 46‑series cylindrical cells to multiple U.S. and European OEMs and, given the sluggish North American EV market, is now targeting hybrid‑electric vehicle projects where demand is rising.

In next‑generation batteries, the company will mass‑produce tabless 2170 cells this year for BBU and robotics. A sodium‑ion pilot line is being set up in Ochang to ship test volumes for ESS and EV applications next year. Solid‑state batteries remain a longer‑term bet; a pilot line using dry electrode processing will be established this year to evaluate price‑competitive designs.

What the Call Revealed

The standout message from LG Energy Solution’s second‑quarter call is that ESS has become the company’s growth locomotive far faster than anticipated. While the 1% operating margin shows the cost of that rapid expansion, management’s confidence in hitting targets and turning ESS durably profitable – even without government subsidies – suggests the company believes it is building an irreversible competitive moat in North America. Analysts will be watching closely whether the guided shipment jumps materialize and whether the restart of GM’s Phase 1 can lift automotive margins in tandem with the ESS boom.