North American Battery Localization And Grid Electrification Will Reshape Markets

Key Takeaways

• Favorable policy tailwinds and rapid electrification in North America are driving strong growth and margin improvements for LG Energy Solution's energy storage business.
  
• Product and customer diversification, along with cost innovation and investment in advanced battery technologies, underpin stable long-term earnings and resilience.
  
• Policy unpredictability, high capital spending, and mounting competition threaten LG Energy Solution's profitability, cash flow stability, and exposure to demand shocks and currency risks.

Catalysts

Provides energy solutions worldwide.

• Structural policy support for battery localization in North America (e.g., IRA, AMPC, ITC) and escalating barriers for Chinese competitors are uniquely advantaging LG Energy Solution as the only local LFP ESS battery producer, setting up a multi-year surge in ESS demand that can drive significant revenue growth and improve capacity utilization rates.
  
• Rapid electrification and the acceleration of AI/data center-driven electricity demand in the U.S. are fueling unprecedented growth in grid-scale energy storage needs, with LG Energy Solution already securing over 50GWh in orders and planning to double North American ESS capacity by 2026-creating a strong catalyst for both top-line revenue and net margin improvements through operating leverage.
  
• Expansion and diversification of product portfolio (prismatic, cylindrical, LFP, LMR chemistries), combined with a broadening customer base including major global automakers and utility-scale ESS customers, lowers revenue concentration risk and underpins stable, long-term earnings growth.
  
• Persistent cost innovation initiatives (material cost reduction, optimized supply chain strategies, process advancements like dry electrode production) are expected to enable higher margins by lowering COGS, especially as raw materials volatility and price-based competition rise sector-wide.
  
• Continued investments and swift execution in next-generation battery technologies (high-nickel, solid-state, fast-charging, high-density LMR and LFP cells) position LG Energy Solution to capture rising ASP opportunities and defend market share as electrification spreads globally, supporting sustained revenue and profitability momentum.

LG Energy Solution Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming LG Energy Solution's revenue will grow by 15.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from -4.5% today to 7.6% in 3 years time.
• Analysts expect earnings to reach ₩3012.1 billion (and earnings per share of ₩12679.35) by about August 2028, up from ₩-1164.0 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₩4076.0 billion in earnings, and the most bearish expecting ₩1463.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 42.9x on those 2028 earnings, up from -77.2x today. This future PE is greater than the current PE for the KR Electrical industry at 22.7x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.35%, as per the Simply Wall St company report.

LG Energy Solution Future Earnings Per Share Growth

Risks

• Growing policy volatility, including fluctuating tariffs, early termination of EV consumer subsidies in the U.S., and complex eligibility criteria for tax credits (like PFE rules), may suppress battery and EV demand and complicate LG Energy Solution's access to international markets, negatively impacting future revenue growth and earnings visibility.
  
• Heavy capital expenditure requirements for capacity expansions in North America and Europe, financed in part through increased borrowings and corporate bond issuance, could place strain on free cash flow and pressure net margins if end-market demand does not meet expectations or if market trends shift unfavorably.
  
• Intensifying competition in the European mid
• to low-end EV market, particularly from Chinese battery producers and domestic suppliers, is driving shipment volume declines, eroding market share, and may result in margin compression for LGES if pricing or production utilization deteriorates.
  
• Dependence on a limited set of major customers and regions, along with conservative inventory management among OEMs (notably in Europe), increases the risk of sudden revenue shortfalls or earnings volatility if key clients reduce orders or shift sourcing strategies.
  
• Exposure to foreign exchange fluctuations and rising interest expenses due to increased foreign currency-denominated debt have already led to significant non-operating losses, and continued volatility may further erode net profit and equity position in future periods.

Valuation

• The analysts have a consensus price target of ₩421835.867 for LG Energy Solution based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₩531000.0, and the most bearish reporting a price target of just ₩237000.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₩39646.5 billion, earnings will come to ₩3012.1 billion, and it would be trading on a PE ratio of 42.9x, assuming you use a discount rate of 9.4%.
• Given the current share price of ₩384000.0, the analyst price target of ₩421835.87 is 9.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.