Tesla battery supplier LG Chem expects Q3 profit as EV business takes off

LG Chem, one of Tesla’s battery suppliers, stated on Monday that its third-quarter profit has likely jumped to a record high, possibly beating the expectations of analysts. While the company did not provide details of its results, analysts are speculating that the company’s upbeat outlook may be partly attributed to LG Chem’s partnership with Tesla, which is ramping its operations in China. 

While the pandemic has wreaked havoc across the market, LG Chem appears to be weathering the storm fairly well. Apart from Tesla’s growing business in China and the electric car maker’s ramp of its Model 3 production, LG Chem was able to address the need for the increasing demand for home appliances, thanks to its petrochemical products. 

As noted in a Reuters report, LG Chem estimated that its operating profit was able to jump 159% to 902 billion won ($788.94 million) in Q3 2020, above analysts’ estimate of 746 billion won. Revenue is expected to rise 9% to 7.5 trillion won compared to 2019 as well. 

Overall, analysts expect LG Chem’s battery business to stay profitable in Q3 2020. The company’s petrochemicals business is expected to post solid profits in the third quarter as well. 

Yet despite these optimistic estimates, LG Chem shares have met some pressure on the market, partly due to issues with fires in the Hyundai Kona Electric, which uses the company’s battery cells. LG Chem has stated that its batteries were not the cause of the Hyundai Kona Electric’s fires, though the specific cause of the incidents has not been determined as of yet. 

Apart from this, LG Chem is also feeling some pressure after it announced last month that it would be spinning off its battery business into its own company. Furthermore, the South Korean firm has felt headwinds following Tesla’s announcement of its battery cell production plans. That being said, Tesla has assured its partners like Panasonic, LG Chem, and CATL that it intends to keep its battery partnerships even if it’s already producing its own cells. 

LG Chem, together with CATL, is a key supplier of battery cells for Tesla’s operations in Gigafactory Shanghai, where the Made-in-China Model 3 is produced. Recent reports have emerged pointing to the China-based factory raising its output this fourth quarter to record levels. 

LG Chem is expected to release its third quarter earnings report later this month.

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