LG Energy Solution, Samsung SDI See ESS Revenue Share Near 30% as EV Demand Slows

The combined energy storage (ESS) revenue share of LG Energy Solution and Samsung SDI is anticipated to surge from the 20% range in Q2 to the mid-30% range by year-end, according to industry sources and securities analysts. AI data center power consumption is on the rise in North America, while battery manufacturers are swiftly shifting their production lines to ESS products to counteract slowing electric vehicle demand.

As of Q2, ESS accounted for 28% of LG Energy Solution's revenue, up from 22.7% in Q4 of the previous year. Projections indicate that ESS revenue will reach 2.98 trillion won ($2.11 billion) in Q3 and 3.85 trillion won in Q4, resulting in a 37.3% share of total revenue by the fourth quarter. Samsung SDI's ESS revenue share is expected to escalate from 20.6% in Q2 to 35.1% by the fourth quarter.

The revenue mix shift is primarily driven by the expansion of AI data centers and increased investments in North American power grids. ESS demand, previously dominated by conventional power-generation projects, is transitioning towards large-scale and long-duration systems due to the expansion of AI data centers. LG Energy Solution has received over 3 trillion won in new ESS orders in the first half of this year, including projects with AI data centers such as the Steel River Energy Project in Arkansas, developed by Google and U.S. power-generation company CCE.

The project involves the supply of batteries for a 2.9-gigawatt ESS system integrated with 2.5 gigawatts of solar power generation. Both companies are converting EV battery production lines to ESS production in response to market dynamics. Samsung SDI initiated the operation of an EV battery production line at its Indiana joint venture with Stellantis in Q4 last year, converting it to produce nickel-cobalt-aluminum-based ESS batteries.

Recently, Samsung SDI acquired Stellantis' stake in the joint venture with General Motors and plans to construct its first wholly-owned battery plant in North America, incorporating ESS battery production lines. LG Energy Solution aims to establish five major ESS manufacturing hubs in North America and secure more than 50 gigawatt-hours of local production capacity by year-end.

The company has also started producing ESS cells at its joint venture with Honda in Michigan and its Ultium Cells plant in Tennessee, with plans to launch pouch-type LFP batteries for ESS this year and prismatic LFP batteries next. LG Energy Solution has filed patent infringement complaints with the U.S. International Trade Commission against Chinese battery maker EVE Energy and others, bolstering its position in the global battery market beyond power tools and EVs.

Tax credits under the U.S. Inflation Reduction Act are anticipated to play a crucial role in profitability, with Samsung SDI reporting a 203.8 billion won operating profit in Q2, marking its first profitability in seven quarters. The results include one-off tariff refund benefits and Advanced Manufacturing Production Credit (AMPC) advantages stemming from increased North American production.

Analysts foresee AMPC benefits expanding as local production rises, potentially leading to a structural improvement in profitability. However, Chinese manufacturers maintain a significant share of the North American ESS market, while automakers are venturing into ESS business. Companies securing large-scale production capacity ahead of a market upturn may gain an early lead, while improved earnings visibility could further enhance profitability as LFP battery supplies ramp up in the second half of the year.