To ensure stable operations at all sites, LG Energy Solution is working with German industrial group Siemens to introduce AI-backed quality control measures.
LG Energy Solution reported stellar earnings for the July-September quarter, with sales rising 8% on the year to 8.2 trillion won ($6 billion). Operating profit reached a record high of 731.2 billion won, up 40%. U.S. battery production subsidies boosted profits by 215.5 billion won.
"While some customers in Europe and China might adjust production plans, the relatively stable increase in demand in the U.S. would contribute to continued sales growth," said Chief Financial Officer Lee Chang-sil during an earnings call Wednesday.
LG Energy Solution has been riding the wave of the global shift to electric vehicles, landing a series of large orders in recent years. It has plans to start up jointly operated plants with General Motors in three locations in the U.S., and is also building factories with Honda Motor, Hyundai Motor, Ford Motor and Stellantis.
The company also announced this month that it will install a production line exclusively for Toyota at one of its U.S. factories.
It had a 500 trillion won order backlog, a figure that has ballooned over the past year with a flurry of new orders from such automakers as Toyota, Hyundai and Ford.
Despite the strong demand, the actual supply system has yet to be fully in place. Construction and expansion work is simultaneously underway at 10 locations around the world, with the aim of starting operations within the next two to three years.
LG Energy Solution raised 10.2 trillion won by issuing new shares when it went public in January 2022, using the cash for capital investments as well as research and development.
The company invested 470.7 billion won on upgrading production technology in the January-June period, up 24% on the year.
In particular, it is working with Siemens on smart factories that use data collected from battery production equipment and artificial intelligence to improve yield.
For example, such variables as temperature and pressure changes within equipment and processing speed will be modeled to find optimal conditions for putting together battery materials.
In addition to reducing labor, the technology can help accumulate manufacturing "recipes" for optimal equipment settings, allowing stable and consistent production at any plant.
In February 2022, the company hired Byun Kyung-seok, who oversaw the development of machine learning technology at AI chip leader Nvidia, to serve as chief digital officer and lead development of the smart factories.
LG Energy Solution CEO Kwon Young-soo led improvements in panel production as president of LG Display. "Smart factory technology is essential for improving battery quality," Kwon has said, indicating that the company plans to deepen its collaboration with Siemens.
Its strive to improve yield by incorporating external know-how stems from past failures.
In October 2021, LG paid GM 1.4 trillion won after 140,000 Chevrolet Bolt EVs were recalled due to risk of fire from faulty batteries. Batteries account for 30% to 40% of EV costs, making their replacement very expensive.
Also in 2021, LG Energy Solution booked a provision for the recall of batteries it supplied to Hyundai. The company's quarterly operating profit was in the red in both cases.
The company is supplying batteries to an increasing number of customers, helping sales double in two years, but a future recall could result in even higher costs.
China's Contemporary Amperex Technology Co. Ltd. (CATL), the world's largest automotive battery maker, is also rushing to boost supply, collaborating with Huawei Technologies to install high-speed networks in its factories to improve the efficiency of quality inspections using AI.
LG Energy Solution is currently planning to start operations at eight plants in North America, giving the company an outsized role in the building of the region's EV supply chain. Its success or failure in capacity expansion could influence the EV shift in the U.S.
