---
endpoint: analytics
pattern: Technology
status: done
latency_ms: 201209
conversation_id: 17832129-f15b-4a2f-a80a-b06d57f79bd1
citations: 8
created: 2026-05-31 19:52:13Z
---

# What are the key risks to LG Energy Solution’s growth trajectory?

# Key Risks to LG Energy Solution's Growth Trajectory

LG Energy Solution (373220.KS, "LGES") faces a multi-dimensional risk profile that has materially compressed its near-term growth trajectory. Internal CLSA research (rated **Underperform** as of the most recent transfer-of-coverage note) and LGES's own management commentary across the last six earnings cycles converge on roughly eight distinct risk vectors. The corpus snapshot extends through CLSA's note dated 30 June 2025 and LGES's Q2 2025 earnings call.

---

## 1. EV Demand Slowdown — The Primary Top-Line Risk

The single biggest overhang is a structural deceleration in global EV battery demand, particularly in LGES's two anchor regions (North America and Europe).

- LGES itself acknowledged that global EV demand is growing at the **mid-20% range vs the prior trend of >30% annually**, calling it "a temporary slowdown" tied to "OEMs' conservative inventory control along with continued metal price decline" [1].
- In Q2 2024, despite a sequential revenue uptick, LGES flagged "the ongoing trend of EV demand slowdown and the impact of declining metal prices on ASP" as the binding constraint on revenue [6].
- By Q1 2025, management's stance hardened materially: there is now "a larger possibility that there would be some downside to the demand forecast going forward" — the rationale for a ~30% CapEx cut [3].
- Heading into H2 2025, management telegraphed that "a challenging business environment is expected in H2 as well" [8].
- The damage to 2024 results is the proof: **revenue fell 24% YoY and operating profit fell 73% YoY**, with the EU pull-back being the principal driver [11].

CLSA's own house view through Dec 2024 stated bluntly that **"2025 will be a bumpy one for battery names"** and that the implied +25% volume growth needed to sustain the share price was unrealistic in a tailwind-less environment [15].

## 2. US Policy Risk — The Subsidy Cliff and AMPC Exposure

LGES's North American thesis is heavily levered to two US policy structures, both of which are now visibly eroding.

- CLSA flags a **"high risk of the US$7,500 EV subsidy being removed in the US sometime this year"** as the central reason to remain Underperform [9].
- This risk has now crystallized. Per LGES's own July 2025 IR materials, the **One Big Beautiful Bill Act** explicitly phases out the consumer EV subsidy after **September 30** [5], removing the single largest pricing tailwind for the US EV market.
- LGES's AMPC tax-credit guidance of **45-50GWh** for 2025 implies **~50% YoY shipment growth** — which CLSA calls "aggressive" because "in the event of EV subsidy cut, overall US EV demand may trend flat/down or at best see low single digit growth" [10].
- In Q4 2024, LGES itself acknowledged that "the US$7,500 EV tax credit in the U.S. is expected to have a direct impact, so we are closely monitoring the downside risks to demand" [17].
- The IRA 30D consumer credit appears most exposed, while the AMPC 45X production credit "does not seem likely to have high variability" — but tariffs remain a wildcard, with high tariffs on specific countries the more probable scenario [14].
- CLSA's valuation builds in this risk explicitly via a **50% discount rate on AMPC** in the DCF — i.e., the AMPC stream is haircut by half "to reflect potential policy risks" [16]. A more punitive policy outcome would directly compress fair value below current ₩330,000 TP.

## 3. Chinese Competition and OEM In-Sourcing — Structural Margin Pressure

LGES is sandwiched between low-cost Chinese exports (CATL, BYD) and customer-led vertical integration.

- CFO Lee Chang Sil explicitly identified this two-front war in Q3 2024: **"from the Chinese companies, there continues to be an increase in exports, and our key customers continue to internalize their battery production. So... this is leading to a more competitive environment for the market as a whole"** [2].
- In Q4 2024, LGES warned of intensifying protectionism centered on the US and noted that "if there are changes in policies and regulations, the growth rate of demand may slow down in the short term" [7].
- The pricing pressure has shown up directly: Chinese cell exports + LFP commoditization have hit ASP at the same time that lithium/nickel deflation has compressed pass-through economics [11].

## 4. Customer Concentration — Especially Tesla, GM, VW

LGES's revenue base is highly concentrated in a narrow set of OEMs, each of whom has its own EV-demand problem.

| Customer | % of LGES Capacity |
|---|---|
| VW Group | 30.9% |
| Tesla | 25.9% |
| GM | 15.8% |
| Hyundai Motor | 6.3% |
| Geely-Volvo | 6.1% |
| Renault-Nissan-Mitsubishi | 5.1% |
| Ford | 4.2% |

Source: CLSA, EV-Volumes [12]

- The top 3 customers (VW, Tesla, GM) account for **72.6%** of LGES's capacity allocation [12]. GM specifically had EV inventory build heading into 2025 due to "the underperformance in EV sales targets in 2024" — LGES expected Q1 2025 inventory adjustments to delay demand recovery until 2H 2025 [14].
- Tesla's slowdown in cylindrical-cell demand was already flagged as a risk to Mobility & IT segment by management as far back as Q3 2022, and the 46-series order is now expected to be **evenly three-way split between LGES, Panasonic, and Tesla in-house** — capping LGES's wallet share at ~33% even if Optimus/robotaxi ramps materialize.

## 5. Overcapacity Risk — The CapEx Drag

LGES expanded aggressively in North America during the IRA-fueled 2022-2023 cycle, and demand has not arrived on schedule.

- In Q1 2025 LGES took the decisive step: CapEx is being cut "on the larger side, which would be at the 30% range or so... we are very focused on the utilization... the overall plan that we have is **not invest into any new capacity. At the same time, we want to prevent any overcapacity situation** and also save back on our CapEx as much as possible" [3].
- Idle EV capacity in **Poland is being converted to ESS lines**, and the Stellantis/Honda JVs will ramp slowly, "not rushed... closely monitoring demand conditions" — i.e., the company is prioritizing "efficiency of previously invested capacity over new investments" [13].
- The Arizona ESS site was deferred, and instead LGES acquired GM's Lansing, Michigan site to absorb existing demand — a defensive consolidation move, not capacity addition [3].
- This pivot follows a year (2024) in which CapEx was **~₩13 trillion**, contributing to an op margin of just 2.2% on a 24% revenue decline [11].

## 6. Tariffs and Trade Frictions — A Double-Edged Sword

- LGES's own Q1 2025 IR deck quantifies the impact: **"Vehicle price to increase and EV demand to slowdown due to tariffs increase"**, with US 2025 EV demand mapped to **"Decline by 10%+"** vs the prior baseline [4].
- In the EU, **"Short-term slowdown in EV transition due to the relaxation of CO2 regulations"** is acknowledged as a near-term headwind, partly offset by the long-term carbon-neutrality push [4].
- Battery production cost is also expected to rise "due to tariffs imposed on key raw materials" [4] — a margin negative even as LGES benefits from China-decoupling demand for local supply.

## 7. Geopolitical and Macro Uncertainty — The "Less Predictable" Market

LGES's CFO has used progressively stronger language each quarter:
- Q4 2024: "due to the delayed recovery of the global economy and geopolitical and policy uncertainties, there is more caution than ever when it comes to forecasting demand" [7].
- Q4 2024: "the ongoing geopolitical and policy uncertainties have made the battery market less predictable, and the entire value chain is facing unprecedented challenges" [7].
- These uncertainties feed into a wider error bar around volume, ASP, and capex plans — and ultimately around the credibility of any growth-trajectory forecast.

## 8. Raw-Material / ASP Pass-Through Risk

LGES's revenue model includes a metal-price pass-through to OEMs, which cuts both ways:
- Lithium hydroxide prices fell **~80% from the 2022 peak**, flowing directly through 2024 ASP and depressing the top line even as volumes were marginally OK in NA [11].
- A renewed metal-price spike (e.g., from a China decoupling shock or rare-earth restriction) would invert the dynamic but also strain working capital and JV pricing negotiations.

## 9. Mitigants and Offsets (For Balance)

LGES is not without optionality, and CLSA acknowledges upside risks:
- **ESS pivot** — LGES is "accelerating the revenue expansion in ESS with relatively higher growth potential", aided by US tariff escalation on Chinese ESS batteries from 10.9% to **28.4% starting 2026** [17]. ESS for power grids and AI data centers is the most visible growth lever.
- **Diversification of customer base** — first 46-series cylindrical order with **Chery (Chinese OEM)**, plus the new Toyota Tsusho JV for used-battery preprocessing in North Carolina [8].
- **Sector-rotation upside** — CLSA explicitly notes "upside risk remaining in sector rotation flows (given the underweight status of batteries) along with strong EV demand (20%+) in 2025" [Risk reference embedded in U-PF report].
- A "strong reversal (+15-20%) in EV demand in 2025" would be the principal upside catalyst.

---

## Summary — Risk Map

| # | Risk | Severity | Time Horizon | Source Confirmation |
|---|---|---|---|---|
| 1 | EV demand slowdown (US/EU) | High | Near-term (1-2yr) | LGES + CLSA [1][3][6][11][15] |
| 2 | US $7,500 subsidy / AMPC erosion | High | Imminent (Q3 2025) | LGES + CLSA [5][9][10][16] |
| 3 | Chinese competition + OEM in-housing | High | Structural | LGES [2] |
| 4 | Customer concentration (VW/Tesla/GM) | High | Structural | CLSA [12] |
| 5 | Overcapacity / CapEx drag | Medium-High | 2-3yr | LGES [3][13] |
| 6 | Tariffs (US + raw materials) | Medium | Near-term | LGES [4] |
| 7 | Geopolitical / macro uncertainty | Medium | Ongoing | LGES [7] |
| 8 | Metal-price ASP pass-through | Medium | Cyclical | LGES [11] |

**Bottom line**: The biggest near-term growth risk is the September 30 expiration of the US $7,500 EV consumer credit colliding with already-soft EV demand at VW/Tesla/GM and a 50%-shipment-growth-implied AMPC guide that CLSA flags as aggressive. Behind that, the structural risk is Chinese cell exports and customer-led battery in-sourcing eroding LGES's medium-term volume and pricing power — risks management itself has called out by name [2]. CLSA's response has been to keep LGES at Underperform with a TP of ₩330,000, applying a 50% policy-risk haircut to AMPC value in the DCF [16].

---

**Sources**

[1] LG Energy Solution Q4 2023 IR Deck — slides (Dec 2023)
[2] LG Energy Solution Q3 2024 Earnings Call (30 Sep 2024)
[3] LG Energy Solution Q1 2025 Earnings Call (31 Mar 2025)
[4] LG Energy Solution Q1 2025 IR Deck — slides (31 Mar 2025)
[5] LG Energy Solution Q2 2025 IR Deck — 2Q25 business performance ENG (Jun-Jul 2025)
[6] LG Energy Solution Q2 2024 Conference Call Deck — slides (30 Jun 2024)
[7] LG Energy Solution Q4 2024 Earnings Call (31 Dec 2024)
[8] LG Energy Solution Q2 2025 Earnings Call (30 Jun 2025)
[9] LG Energy Solution - U-PF (Exercising caution) — CLSA (26 Jan 2025) — 607949022LinqAlpha.PDF
[10] LG Energy Solution - U-PF (Exercising caution) — CLSA (26 Jan 2025) — 607949022LinqAlpha.PDF
[11] LG Energy Solution - U-PF (Exercising caution) — CLSA (26 Jan 2025) — 607949022LinqAlpha.PDF
[12] LG Energy Solution - U-PF (Exercising caution) — CLSA, EV-Volumes (26 Jan 2025) — 607949022LinqAlpha.PDF
[13] LG Energy Solution - U-PF (Exercising caution) — CLSA (26 Jan 2025) — 607949022LinqAlpha.PDF
[14] LG Energy Solution - U-PF (Exercising caution) — CLSA (26 Jan 2025) — 607949022LinqAlpha.PDF
[15] Korea EVs (Don't have to swing at every pitch) — CLSA (12 Dec 2024) — 607946595LinqAlpha.PDF
[16] LG Energy Solution - U-PF (Exercising caution) — CLSA (26 Jan 2025) — 607949022LinqAlpha.PDF
[17] LG Energy Solution - U-PF (Exercising caution) — CLSA (26 Jan 2025) — 607949022LinqAlpha.PDF

## Citations

- [1] **LG Energy Solution Ltd. IR PPT: Q4 2023 Earnings Call** · external
- [2] **Q3 2024 LG Energy Solution, Ltd.** · external
- [3] **Q1 2025 LG Energy Solution, Ltd.** · external
- [4] **LG Energy Solution Ltd. Slide 1: Q1 2025 Earnings Call** · external
- [5] **252Q_LGES_business_performance_ENG.pdf** · external
- [6] **undefined - Q2 2024 - Conference Call Deck** · external
- [7] **Q4 2024 LG Energy Solution, Ltd.** · external
- [8] **Q2 2025 LG Energy Solution, Ltd.** · external

