---
endpoint: analytics
pattern: Technology
status: done
latency_ms: 220679
conversation_id: d29b7aa7-70a0-4f65-97fc-d99fc7a53715
citations: 6
created: 2026-05-31 20:16:33Z
---

# What’s the bull case bear case for LG Energy Solution?

# LG Energy Solution (373220 KS) — Bull Case vs Bear Case

**Last covered internally:** CLSA — Underperform, TP ₩330,000, current ₩290,500 (as of 16-May-2025 coverage transfer to Dong Cheol Shin) [5]. CLSA's latest LGES-specific note ("Exercising caution") is dated 26-Jan-2025 [1]. Latest public data point is the company's **Q1 2026 earnings deck** showing Revenue ₩6,555bn and Operating Loss of ₩208bn (margin **-3.2%**) vs Q1'25 OP ₩375bn (+5.6% margin) [13].

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## BULL CASE

### 1. ESS as the new growth engine — riding AI/data center power demand
The most important structural shift in the LGES thesis. Management identifies "increasing needs for power grid stability backed by power consumption growth" and "uncertainty in energy supply" as the dominant industry tailwinds, with Solar+ESS carrying a **1–3 year lead-time advantage** over gas/coal (5–7 yrs) and nuclear (10–15 yrs) [17]. The CFO has been explicit: "ESS market is expanding due to major countries' moves to stabilize their energy resources… with the advancement of AI technology, the proliferation of data centers is accelerating, resulting in a rapid increase in power demand" [7].
- LGES plans to **establish 50+ GWh of ESS production capacity in North America by end-of-2026** [16], building local-content moat ahead of OBBBA's 50%+ local-content threshold for the 48E ITC [17].
- Starting 2026, the **import tariff on Chinese ESS batteries rises from 10.9% to 28.4%**, structurally favoring local producers [7].

### 2. 46-series cylindrical order backlog — bookings are rising fast
The cylindrical 46-series (Tesla-style large-format) order book has nearly **doubled from 300+ GWh at YE'25 to 440+ GWh by end-April 2026** [15]. CLSA's December 2024 note flags LGES as the natural play on the cylindrical/SpaceX/humanoid narrative given its cylindrical-cell leadership and 46-series capacity build-out.

### 3. US localization advantage + AMPC tailwind
LGES has 5 operating/near-operating North American sites (Holland MI, Lansing MI, Windsor ON, Spring Hill TN, Jeffersonville OH-Honda JV) and 2026 AMPC-eligible capacity is guided at **45–50 GWh, up ~40% YoY** [8]. Even CLSA's bear-case DCF includes AMPC at a 50% policy-discounted value [4]. Management argues IRA's AMPC 45X (production credit) has "low variability" of repeal risk, vs the 30D consumer credit which is more exposed [10].

### 4. Demand recovery sets up a 2026 inflection
Management expects gradual EV-volume recovery from 2Q'25 as OEM (especially GM) inventory adjustments complete, with **"demand recovery expected to proceed rapidly after 2026"** [10]. CLSA explicitly flags that **stronger-than-expected EV demand (20%+ in 2025) plus sector-rotation flows into underweight battery names are the key upside risks to its Underperform call** [4].

### 5. Capex discipline + technology pipeline
- **Capex cut 20–30%** and Q1'26 capex already **−40% YoY** to ₩1.6tn [15]; management is prioritizing utilization of existing assets over greenfield builds [11].
- Differentiation roadmap covers **dry electrode processing, solid-state batteries, sodium-ion, silicon anode, and high-nickel pouch / 46-series for premium**, plus LFP/high-voltage mid-nickel for standard [18][7].
- Next-gen high-capacity LFP product targeting **>10% landed-cost improvement** to attack price-competitive segments [15].

### 6. Earnings model — 2026CL recovery in CLSA's own numbers
Even the cautious CLSA model has FY26 revenue growing to ₩30.6tn, net profit recovering to ₩1,637bn (vs FY24 loss of ₩461bn), and EPS swing from −₩1,972 to +₩6,998 — i.e., the cyclical trough is FY24, recovery starts FY25 and accelerates FY26 (CLSA estimates, embedded in 26-Jan-2025 note [12]).

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## BEAR CASE

### 1. The trough hasn't passed yet — Q1'26 was worse, not better
This is the hardest data point for bulls to dismiss. Q1'26 swung to an **Operating Loss of ₩208bn (margin −3.2%)** from a Q1'25 OP of ₩375bn (+5.6%), driven by "initial ramp-up cost burden from the expansion of ESS production sites and the deterioration of product mix caused by reduced EV pouch volume in NA" [13]. The recovery promised for 2H'25 / FY'26 has not yet materialized in reported numbers.

### 2. Leverage is climbing fast — balance sheet stress
- **Liabilities/Equity went from 99% (Q1'25) → 129% (Q4'25) → 140% (Q1'26)** [14].
- **Net Debt/Equity from 45% → 64% → 70%** [14].
- Total debt ballooned from ₩17.6tn to ₩24.7tn in one year [14]. Even after capex cuts, FY'25 capex was still ₩10.5tn [15] against an operating loss — funded by new debt issuance.
- CLSA flags net debt/equity rising to ~30% in its FY25–26 estimates [12], but the actual prints are already running ~2x that.

### 3. Conservative 2025 guidance was already BELOW consensus
LGES guided FY25 revenue growth of just **5–10%, vs consensus 14%** [1][9]. Management itself "acknowledged the tough situation for 2025" [9]. AMPC volume guidance of 45–50 GWh implies **50% YoY shipment growth — CLSA calls this "aggressive"** [12].

### 4. US policy risk — the asymmetric downside
- The **US$7,500 EV consumer tax credit (30D) carries a "relatively high possibility of abolishing or reducing"** per LGES's own scenario work [10]; CLSA assumes a removal under Trump and warns demand could **"overshoot to the downside"** since recent US EV strength has been pull-forward pre-buying [6].
- CLSA's DCF applies a **50% policy-discount to AMPC credits** to reflect this [4][3].
- Even on AMPC itself, OBBBA requires **50%+ local-content from 2027 (rising to 55%)** for the 48E ITC [17] — a moving target that requires continuous capex.

### 5. LFP penetration — structural margin/share risk
CLSA's named negative catalysts for LGES explicitly include **"higher/faster LFP (lithium iron phosphate) battery penetration"** [2]. LGES is a high-nickel pouch incumbent; faster LFP adoption by global OEMs (where CATL/BYD lead) compresses LGES's addressable share. LGES is responding by accelerating its own LFP localization in the US "from the 2026 plan to the first half of 2025" [11], but this is a defensive — not offensive — move.

### 6. OEM concentration + GM/Stellantis specific risk
Q4'24 losses were driven by "North American EV shipments decreased by over 20% due to inventory adjustments… some ESS projects were postponed… one-time costs such as write-offs of non-moving inventory" [9]. The GM JV is the largest single customer exposure; management's recovery thesis depends on GM completing inventory adjustments in 1Q and ramping in 2Q [10], a customer-specific bet.

### 7. CLSA's bottom line: negatives not fully priced in
> "Despite risks surrounding slower EV penetration and EV delivery delays being more or less priced in, we continue to see risks with regard to 2025 consensus OP… we believe the negatives are not fully priced in and continue to exhibit caution towards the stock." [3]

CLSA maintains **Underperform, ₩330,000 TP** (~14% upside to ₩290,500) [5][12], with the rating reaffirmed in both Jan-2025 LGES-specific note and the May-2025 transfer-of-coverage memo.

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## Bull / Bear Snapshot Table

| Driver | Bull View | Bear View |
|---|---|---|
| **ESS / AI power** | Structural multi-year demand, 50+GWh NA capacity by '26 [16], China tariff hike to 28.4% benefits LGES [7] | ESS ramp-up costs driving Q1'26 OP loss of ₩208bn [13] |
| **EV demand** | Recovery from 2Q'25, accelerating post-2026 [10]; bull case = 20%+ EV growth in '25 [4] | OEM order cuts, NA pouch volume down [13]; demand could "overshoot to downside" on subsidy cut [6] |
| **US policy** | AMPC 45X production credit seen as "low variability" by mgmt [10]; OBBBA/IAA favor localized players | $7,500 30D credit likely cut [10]; CLSA applies 50% AMPC discount in DCF [4] |
| **Cylindrical 46-series** | Backlog 300+ → 440+ GWh in 4 months [15] | Heavy capex required; payoff is 2026+ |
| **Technology** | Dry electrode, solid-state, sodium-ion, silicon anode pipeline [18] | LFP penetration is a margin/share threat — listed by CLSA as negative catalyst [2] |
| **Financials** | Capex cut 20–30%, Q1'26 capex −40% YoY [15]; FY26CL EPS ₩6,998 vs FY24 loss [12] | D/E rising to 140%, net D/E 70%, debt ₩24.7tn [14]; FY25 guide 5–10% < 14% consensus [1] |
| **Rating** | Upside risks: sector rotation + strong EV demand [4] | CLSA U-PF, TP ₩330,000 [5] |

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## Bottom Line

The setup is a classic **policy-uncertainty + operational-trough vs structural-pivot** debate. The bear case is anchored on what is already happening (Q1'26 OP loss, leverage spike, sub-consensus guide, US subsidy risk); the bull case is anchored on what is promised to happen (ESS+AI build-out, EV demand recovery from 2026, cylindrical backlog conversion, capex discipline). Internal coverage (CLSA, both the Jan and May 2025 notes) sits on the bear side at Underperform with ₩330,000 TP, conceding the upside risk is real but believing 2025 consensus OP is still too high [3][4][5][12].

---

**Sources**
[1] LG Energy Solution — U-PF (Exercising caution) — CLSA (26-Jan-2025) — 607949022LinqAlpha.PDF
[2] LG Energy Solution — U-PF (Exercising caution) — CLSA (26-Jan-2025) — 607949022LinqAlpha.PDF (Catalysts list)
[3] LG Energy Solution — U-PF (Exercising caution) — CLSA (26-Jan-2025) — 607949022LinqAlpha.PDF (Investment thesis)
[4] LG Energy Solution — U-PF (Exercising caution) — CLSA (26-Jan-2025) — 607949022LinqAlpha.PDF (Investment risks)
[5] Korea EVs (Transfer of coverage) — CLSA (16-May-2025) — 607959725LinqAlpha.PDF (Rating/TP table)
[6] LG Energy Solution — U-PF (Exercising caution) — CLSA (26-Jan-2025) — 607949022LinqAlpha.PDF (Subsidy cut overshoot)
[7] LG Energy Solution — U-PF (Exercising caution) — CLSA (26-Jan-2025) — 607949022LinqAlpha.PDF (CFO ESS/data-center commentary)
[8] LG Energy Solution — U-PF (Exercising caution) — CLSA (26-Jan-2025) — 607949022LinqAlpha.PDF (2025 outlook)
[9] LG Energy Solution — U-PF (Exercising caution) — CLSA (26-Jan-2025) — 607949022LinqAlpha.PDF (4Q24 review)
[10] LG Energy Solution — U-PF (Exercising caution) — CLSA (26-Jan-2025) — 607949022LinqAlpha.PDF (IRA / GM Q&A)
[11] LG Energy Solution — U-PF (Exercising caution) — CLSA (26-Jan-2025) — 607949022LinqAlpha.PDF (NA capacity reallocation)
[12] LG Energy Solution — U-PF (Exercising caution) — CLSA (26-Jan-2025) — 607949022LinqAlpha.PDF (Maintain Underperform / financials)
[13] LG Energy Solution, Ltd. Q1 2026 Earnings Conference Call — Slides
[14] LG Energy Solution, Ltd. Q1 2026 Earnings Conference Call — Slides (Leverage Ratio table)
[15] LG Energy Solution, Ltd. Q1 2026 Earnings Conference Call — Slides (Key Achievements / 46-series backlog)
[16] LG Energy Solution, Ltd. Q1 2026 Earnings Conference Call — Slides (NA ESS capacity)
[17] LG Energy Solution, Ltd. Q1 2026 Earnings Conference Call — Slides (Market Analysis / OBBBA / IAA)
[18] LG Energy Solution, Ltd. Q1 2026 Earnings Conference Call — Slides (Product/tech roadmap)

## Citations

- [13] **LG Energy Solution, Ltd., Q1 2026** · external
- [14] **LG Energy Solution, Ltd., Q1 2026** · external
- [15] **LG Energy Solution, Ltd., Q1 2026** · external
- [16] **LG Energy Solution, Ltd., Q1 2026** · external
- [17] **LG Energy Solution, Ltd., Q1 2026** · external
- [18] **LG Energy Solution, Ltd., Q1 2026** · external

