LG Chem Vice Chairman Shin Hak-cheol.

LG Chem saw operating profit dive in the wake of a rise in transient costs, caused by fires related to energy storage systems and the sagging petrochemical business, but the company chalked up the best-ever sales on the back of the growth of the EV battery business.

In particular, as the EV battery business approached the break-even point (BEF) in 2019 Q4, it is expected to achieve a profit this year.

As LG Chem saw higher winning orders through aggressive strategies like the establishment of an EV battery joint-venture with a global automaker, the company is predicted to rise to 2nd place in the global EV battery market in terms of market share, outrunning Panasonic.

LG Chem, based on the growth momentum, plans to put the EV battery business on a growth track.

LG Chem logged 28.6 trillion won, its best-ever sales, last year, but the company saw operating profit dive 60.1 percent year-on-year to 995.6 billion won, the company said on Feb. 3. LG Chem saw net profit plunge 75.2 percent to 376.1 trillion won.

The company recorded growth in sales in 2019 Q4, but it turned to a loss as provisions related to ESS fires were reflected.

LG Chem saw sales increase 1.6 percent year-on-year to 7.461.2 trillion won in 2019 Q4, but the company logged 27.5 billion won in operating loss and 56.8 billion won in net loss in the quarter.

Business analysts said every cloud had a silver lining – the EV battery business, classified as one of LG Chem’s new growth engines, saw future potential amid profit loss.

The EV battery business saw sales jump from 4.560.6 trillion won in 2017 to 6.519.6 trillion won in 2018 and 8.350.3 trillion won last year.

LG Chem CFO Cha Dong-seok said despite the sagging global economy, influenced by the effects of U.S.-Chinese trade conflicts, the battery business’s continued growth momentum capped the best-ever sales of the company, but companywide operating profit shrank, influenced by a rise in transient costs related to ESS fires.

LG Chem plans to make the battery business turn around to a profit this year by investing continuously. The battery business targets 10 trillion won in sales from EV and batteries. The figure represents two-thirds of 15 trillion won in the business’ annual total sales.

LG Chem has already secured a backlog through aggressive order winning strategies. Late last year, LG Chem agreed to establish a battery joint-venture with GM in Ohio State while signing a contract to supply batteries to Telstra, the world’s No. EV automaker.

An image of a battery pack supplied to GM by LG Chem. (Photos: LG Chem)

Business sources said LG Chem now supplies batteries to not only Hyundai Motor and Kia Motors but also major global automakers, including Telstra, Geely Auto of China, Audi, Chevrolet, and Volkswagen. As of last October, LG Chem ranked with a 14.2 percent share in the global battery market, followed by CATL of China with a 26.7 percent share and Panasonic with a 17.5 percent share.

LG Chem Executive Vice President Jang Seung-sae said a conference call on the business performance in the morning of Feb. 3 the profitability of the battery business is forecast to decline due to the new capacity expansion in 2020 Q1, as each quarter will pass by, the business is predicted to be stabilized and achieve an one-digit, middle-level, year-on-year growth in operating profit.

LG Chem indicated a spin-off of the EV battery business and battery business specializing in ESS. CFO Cha told the conference call that several options were studied on the spin-off of the battery business specializing in ESS.

The company was pondering how to enhance the competitiveness of each business, he added.