South Korean battery maker LG Energy Solution Ltd (LGES), a major supplier to U.S. carmakers, including Tesla (TSLA.O). They are reassessing a $1.3 billion investment plan, for an Arizona factory citing “unprecedented” economic conditions.
Recently, news that South Korea’s biggest battery maker is reviewing the plan unveiled months ago, knocked LGES shares down 4%. It comes as more firms review business plans, fearing a drop in consumer demand amid roaring U.S. inflation. Which is mainly caused by global supply chain disruption.
Tesla is cutting 10% of salaried staff and pausing hiring worldwide, and its Chief Executive Elon Musk predicted last week a U.S. recession was more likely. Elsewhere in the United States, LGES is building three plants with General Motors Co (GM.N) in Ohio, Tennessee and Michigan. There are indeed planning to expand its existing factory in Michigan.
However, analysts attributed the investment review to elevated U.S. inflation, running at its highest level in over four decades. Which could lead to rising costs for materials, construction and labour. It would be unlikely for LGES to withdraw its Arizona investment. The company needs to reassess its profitability forecast amid rising cost because of inflation,” said Cho Hyun-ryul, an analyst at Samsung Securities.
Although LGES has stated in March the Arizona plant would be its first U.S. factory to make cylindrical cells, a type of battery in Tesla and Lucid vehicles. Construction was to begin in the second quarter of 2022, it said, with mass production to start in 2024.