SEOUL (Reuters) — Tesla-supplier LG Energy Solution posted a quarterly profit that missed estimates due to rising material costs and COVID-19 curbs in China, and said it was looking for new production sites in Europe and Asia rather than in China.
The South Korean company, which counts EV maker Lucid as a customer, also said it was still reviewing its 1.7 trillion won ($1.29 billion) investment for a battery plant in the U.S. state of Arizona, and planned to reissue a statement about it in three months.
After announcing in March that construction of its Arizona plant was to begin in the second quarter, LGES said last month it would reassess its plan for the factory, citing “unprecedented” economic conditions.
The Arizona plant was to make cylindrical cells, a type of battery that has been used in Tesla and Lucid cars.
There was no change in customer demand for the plant, LGES said on Wednesday, but the company was reviewing plans due to market conditions in North America including extreme inflation and rising construction and logistics costs.
The company added it aims to expand joint ventures with customers for pouch and cylindrical batteries for strategic customers and electric vehicle (EV) startups for the North American market.
Analysts are divided on what EV demand will look like as inflation and interest rates surge, and snarled supply chains and China’s COVID-19 containment measures hurt production.
Still, some analysts said it would take another year for premium EV sales to slow and impact battery sales because supplies were still tight due to pent-up demand.
Shares in the company, which also sells EV batteries to automakers including General Motors, Ford Motor and Volkswagen AG, fell as much as 3% on Wednesday after a six-month post-listing lockup on its shares expired.
LGES raised its revenue outlook for the full year to 22 trillion won from its previous forecast of 19.2 trillion won and above the 20.9 trillion won average of analyst estimates compiled by Refinitiv.
For the quarter ended June, LGES said revenue fell 1.2% on year to 5.1 trillion won.
Sales to Tesla during the quarter took a knock because the U.S. EV maker had to pause production at its Shanghai factory in March and April due to China’s COVID-19 lockdowns.
While battery makers such as LGES have long-term supply deals with automakers, delivery arrangements typically depend on production schedules and prices can be renegotiated based on agreed terms, analysts said.
Analysts expect profitability to recover in the second half of the year as LGES renegotiates terms with customers and passes on some raw material costs.
Operating profit declined to 196 billion won for April-June from 724 billion won a year prior. The year-earlier number included a large one-time gain from a settlement with domestic rival SK On.
Excluding those gains, the profit decline would have been modest.