SOUTH Korean battery maker LG Energy Solution reported financial results that beat analyst estimates, boosted by an estimated tax credit from US President Joe Biden’s climate bill and amid growing worldwide demand for electric vehicles (EV).

Operating profit for three months ended March 31 came in at 633.2 billion won (S$639 million), according to preliminary results released on Friday (Apr 7). That compared to a 483 billion won mean estimate compiled by Bloomberg. Sales for the first quarter were 8.75 trillion won, above a 8.3 trillion won estimate and more than double the same period a year earlier.

LG Energy Solution’s shares rose as much as 1.7 per cent in Seoul following the top line numbers. Final results, with more detailed financial disclosures, are due Apr 26.

The battery maker also included an estimated tax credit of 100.3 billion won from the US Inflation Reduction Act (IRA) in its quarterly operating profit. Excluding that so-called Advanced Manufacturing Production Credit, the company’s actual operating profit rose about 106 per cent from a year earlier, it said.

LG Energy Solution said in a separate statement that the Advanced Manufacturing Production Credit under the IRA grants domestic battery manufacturers a tax credit of US$35/kWh for battery cells and an additional US$10/kWh for battery modules manufactured and sold in the US from 2023. “Having reviewed relevant financial standards and other rules comprehensively, the company decided to reflect the estimated tax credit into its financial results from the first quarter of 2023,” it said.

Higher interest rates and recessionary fears didn’t curb demand for cleaner cars while a weaker Korean won probably improved profitability, Minwoo Ju, an analyst at NH Investment & Securities wrote in a note ahead of the results. The recent US guidance and clarification around Biden’s landmark climate tax bill has also been helpful for Korean battery makers because it’s relaxed some requirements on securing critical minerals, South Korea’s trade ministry said.

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Although LG Energy Solution didn’t release more detailed figures for the quarter, the recent drop in the price of lithium is a concern for industry players as it tends to lower the selling price of EV batteries. Lithium is a particularly crucial element for the manufacture of cathodes, the most expensive part of a cell that in some cases accounts for nearly two thirds of a battery’s cost, according to Evelina Stoikou, an analyst at BloombergNEF.

Chinese lithium carbonate, a gauge for lithium prices, plunged 56 per cent in the first quarter due in part to slower demand for EVs in China and a rise in supply from new mines. The cost of battery cells is estimated to have dropped 16 per cent since January, BNEF said.

LG Energy Solution will likely increase the volume of shipments to offset any potential loss from a drop in selling prices, Lee Yongwook, an analyst at Hanwha Investment & Securities, said.

The South Korean battery giant is also facing stiff competition from Chinese rivals that offer cheaper batteries as EV makers push to lower the prices of clean cars. LG ranks No 3 in the global EV battery market so far this year, with a 13.3 per cent share as of the end of February, down from a No 2 ranking in 2022. China’s Contemporary Amperex Technology, or CATL as it is better known, and BYD now control more than half the world’s market.

CATL is planning a US$3.5 billion battery plant with Ford Motor, for example, while Tesla is looking to build a facility in the US with the Chinese cell maker.

In its own bid to lower costs, LG Energy Solution is developing lithium-iron-phosphate batteries, which are cheaper than its traditional technology of high-nickel cells. In March, it unveiled a plan to invest 7.2 trillion won to build a giant manufacturing complex in Arizona to produce iron-based batteries.

Demand for EV batteries has “risen significantly” from customers in North America because of the IRA, LG Energy Solution said last month. The IRA is also expected to spur the growth of the renewable energy industry in the US, it added at the time. BLOOMBERG