In a recent disclosure, the Tesla supplier, LG Energy Solution, has raised concerns about its revenue growth projections for 2024. This announcement comes amidst shared worries by LGES and Tesla’s CEO, Elon Musk, regarding the potential effects of rising interest rates on the sales of electric vehicles.
A Shift from Earlier Projections
During LG Energy Solution’s Q3 2023 earnings announcement, the South Korean battery manufacturer revealed a potentially decelerating revenue growth trajectory for the upcoming year. The underlying factor, as elucidated by LGES, is the prevailing global economic uncertainties that have cast a shadow of doubt on the performance of the electric vehicle market.
Local Asian news sources have noted that LG Energy Solution is not alone in its apprehensions. A growing list of automakers and suppliers have expressed similar reservations about the demand for electric vehicles in light of escalating interest rates. The underlying fear is that higher interest rates may lead to increased financing costs, potentially impeding growth, especially in major economies like China and Europe. This, in turn, could have a cascading effect on the purchasing power of prospective car buyers.
Kang Dong-jin, an analyst at Hyundai Motor Securities, remarked, “LGES shares were down even before the earnings announcement mostly because of GM’s earnings overnight, but we saw further drops during LGES’ earning conference call because the company said it expects revenue growth in 2024 would not be as big as what they saw in 2023, which had an impact on investors who already were concerned about demand.”
Tesla CEO Elon Musk Echoes Concerns
Elon Musk, the enigmatic CEO of Tesla, echoed LG Energy Solution’s apprehensions during the company’s latest earnings call. He articulated his unease regarding the prevailing high interest rate environment, emphasizing its potential repercussions on the automotive industry. Musk opined, “I am worried about the high interest rate environment that we’re in. I just can’t emphasize this enough: that the vast majority of people buying a car is about the monthly payment. And as interest rates rise, the proportion of that monthly payment that is interest increases naturally.” He further added, “If interest rates remain high or if they go even higher, it’s that much harder for people to buy the car. They simply can’t afford it.”
Financial Snapshot of LG Energy Solution
Amidst these concerns, LG Energy Solution disclosed its financial performance for Q3 2023. The company posted a revenue of KRW 8.22 trillion, which represents a 6.3% decrease quarter-on-quarter, juxtaposed against a commendable 7.5% year-over-year increase. Additionally, LG Energy Solution reported an operating profit of KRW 7.31.2 billion, marking an impressive 58.7% uptick quarter-on-quarter and a substantial 40.1% surge year-on-year.
Conclusion
The cautious stance adopted by LG Energy Solution regarding its revenue growth in 2024 serves as a barometer for the prevailing anxieties within the electric vehicle industry. The convergence of concerns between LG Energy Solution and Tesla’s Elon Musk underscores the gravity of the situation. The impact of high interest rates on consumer purchasing power is a critical factor that will likely influence the trajectory of the electric vehicle market in the foreseeable future.
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SOURCE : TESLARATI
FAQs
How did LG Energy Solution perform in Q3 2023?
LG Energy Solution reported a revenue of KRW 8.22 trillion, a 6.3% decrease from the previous quarter but a commendable 7.5% increase year-over-year. The company also disclosed an operating profit of KRW 7.31.2 billion, reflecting a substantial 58.7% uptick quarter-on-quarter and a noteworthy 40.1% surge year-on-year.
What are the concerns raised by LG Energy Solution and Elon Musk?
Both LG Energy Solution and Elon Musk expressed concerns over the impact of high interest rates on the electric vehicle market. They believe that elevated interest rates may lead to increased financing costs, potentially hampering growth in major economies and affecting the purchasing power of potential car buyers.
How have investors reacted to LG Energy Solution’s announcement?
LG Energy Solution’s shares experienced a drop during the earnings conference call, which was exacerbated by the company’s projection of slower revenue growth in 2024. This announcement further amplified concerns among investors who were already apprehensive about the demand for electric vehicles.