South Korea’s battery industry has successfully staged an earnings rebound starting in the second quarter. While LG Energy Solution managed to swing back into the black, Samsung SDI (006400.KS) and SK On are also expected to drastically reduce their losses. Analysts suggest that the surge in demand for Energy Storage Systems (ESS) batteries, triggered by the expansion of artificial intelligence (AI) data centers, is acting as the key driver of this performance improvement.
According to industry sources on the 8th, LG Energy Solution posted preliminary consolidated second-quarter revenue of ₩7.56 trillion (approximately $5.0 billion) and an operating profit of ₩113.3 billion (approximately $74.9 million). This marks a sharp turnaround from the ₩207.8 billion (approximately $137.3 million) operating loss recorded in the first quarter, breaking the streak of losses that began in the fourth quarter of last year. It is also the first time quarterly revenue has surpassed the ₩7 trillion (approximately $4.6 billion) mark since Q4 2023.
Compared to the same period last year, revenue increased by 24.8%, although operating profit fell by 77.0%. On a cumulative basis for the first half of the year, revenue rose 10.5% year-on-year to ₩14.12 trillion (approximately $9.3 billion), but the company recorded an operating loss of ₩94.5 billion (approximately $62.5 million), turning into a deficit. While the results fell short of market expectations, which hovered around an operating profit of ₩200 billion (approximately $132.2 million), they are considered significant for confirming a positive trajectory in earnings.
The primary catalyst behind this return to profitability is the Advanced Manufacturing Production Credit (AMPC) under the U.S. Inflation Reduction Act (IRA). The North American production subsidies reflected in LG Energy Solution’s second-quarter results amounted to ₩241 billion (approximately $159.3 million). Excluding this benefit, the company’s pure battery manufacturing and sales figures show revenue of ₩7.32 trillion (approximately $4.8 billion) and an operating loss of ₩127.7 billion (approximately $84.4 million), meaning it is still in the red. With its standalone business operating margin at -1.7%, analysts point out that more time is needed for profitability to fully normalize.
Nevertheless, the earnings recovery trend is clear. Demand for pouch-type batteries used in mid-to-low-priced EVs, particularly in Europe, has steadily increased, while stable demand from strategic cylindrical battery clients and the expanded supply of next-generation ’46-series’ batteries have had a positive impact. Notably, the reduction in initial ramp-up cost burdens due to increased ESS shipments in North America contributed to improving profitability.
Samsung SDI and SK On are scheduled to announce their second-quarter results later this month. The market consensus is heavily leaning toward both companies significantly slashing their operating losses to below ₩100 billion (approximately $66.1 million). Some analysts even raise the possibility of a slight swing to an operating profit.
The backdrop to the battery industry’s full-fledged earnings improvement starting in Q2 lies in the recovery of EV demand and the increase in ESS battery demand. As EV demand gradually revives, centered on Europe, the explosive growth in power demand driven by the expansion of AI data centers in North America is rapidly boosting the need for ESS batteries.
Furthermore, with Samsung and SK announcing massive domestic investments totaling approximately ₩480 trillion (approximately $317.3 billion), local demand for ESS batteries in South Korea is also expected to surge. Since the construction of large-scale semiconductor plants and AI data centers requires enormous amounts of power, the movement to build ESS infrastructure—which stores electricity for stable supply—is expected to become highly active.
Major securities firms are also placing weight on improved earnings in the second half of the year. Shinhan Investment Corp. forecasted, “While large-scale orders continue, such as the contract with DTE Energy (6GWh), ESS-related revenue in the second half is expected to increase by 46% compared to the first half.” Joo Min-woo, an analyst at NH Investment & Securities, analyzed, “ESS, which has many new orders, and Tesla, which is seeing increased sales in the European and Asian markets, will drive earnings improvement in the second half.”
However, a cautious outlook exists suggesting that the pace of profitability normalization may be limited. This is because the recovery of the North American EV market is slower than expected, and price competition due to a global battery oversupply persists. The initial ramp-up costs for North American production facilities are also expected to remain a burden for the time being.
An industry insider commented, “While the revenue recovery trend is likely to continue, centered on ESS, the slow pace of the EV market recovery means it will take time for a full-scale profitability improvement. Ultimately, the utilization rates of North American factories and the sales recovery of major clients will be the key variables for earnings normalization.”
Meanwhile, LG Electronics (066570.KS) also recorded its highest-ever second-quarter performance, with revenue of ₩23.83 trillion (approximately $15.8 billion) and an operating profit of ₩1.58 trillion (approximately $1.0 billion), showing simultaneous strength from the two pillars of the LG Group. The cumulative first-half operating profit of ₩3.25 trillion (approximately $2.1 billion) has already surpassed last year’s annual operating profit (₩2.48 trillion).