Battery maker echoes Elon Musk warning ‘higher for longer’ rates to hit EV sales

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Shares of LG Energy Solution dropped to a year-low on Wednesday after the South Korean battery producer echoed Tesla chief Elon Musk and warned electric vehicle sales were expected to slow as a result of higher interest rates.

The downbeat outlook comes as automakers including Tesla, General Motors and Ford slow their EV factory expansions in expectation of weaker demand for cars owing to higher rates increasing financing costs, and slowing economic growth in China and Europe.

“EV demand next year could be lower than expectations,” LGES chief financial officer Lee Chang-sil told analysts in a conference call.

“Sales growth next year won’t be as big as this year as the macro economic environment deteriorates and high interest rates discourage consumer spending, while growth slows in Europe and the EV penetration rate in China goes up,” Lee said.

Lee’s comments echoed Musk’s, who said last week during Tesla’s earnings call that he was “worried about the high interest rate environment we’re in”. Tesla reported net income in the third quarter of $1.85bn, down 44 per cent from a year before.

Shares of LGES, which supplies batteries to Tesla, GM and other automakers, closed down 8.7 per cent at Won409,500, the lowest level in more than a year.

“Investors have been too optimistic about EV demand growth . . . slowing demand growth is coming sooner than expected, especially in the high-end EV market,” said Lee Hang-koo, executive adviser at Korea Automotive Technology Institute.

“The growth rate is slowing in the US and Europe but demand will rebound in the long term due to the environment-friendly policies. However, they will need to expand their low-to-mid-end EV models.”

GM, LGES’s joint venture partner in an Ohio battery plant and two more under construction, said on Tuesday it was slowing its EV strategy to focus on profitability and delaying production of several models to reduce costs.

Despite the dim outlook, LGES is boosting production capacity at its wholly-owned Arizona battery plant by a third to take advantage of tax credits offered under the Inflation Reduction Act. It plans to produce its most sophisticated batteries with a longer driving range at the plant in two years’ time.

LGES reported a 40 per cent jump in third-quarter operating profit to Won731bn ($543.5mn) after it increased production at its Ohio plant with GM. Sales increased 7.5 per cent to Won8.2tn in the July-September quarter but were down 6 per cent from the previous quarter because of weaker demand in Europe.

“The company is facing tougher competition in the US and Europe as more automakers opt for cheaper LFP [lithium iron phosphate] batteries,” said Lee from the automotive institute. “With increased competition, the industry could soon see battery oversupply.”

LGES said it was cutting output at its factory in Poland as Chinese rivals launch cheaper EVs in Europe. It plans to produce cheaper LFP batteries from 2026 to meet demand for lower-priced models.