Tesla battery supplier LG Chem shares jump 10% on upbeat outlook

SEOUL (Reuters) - LG Chem, an electric vehicle battery supplier for Tesla, Volkswagen VOWG_p.DE and others, said on Friday it expects profitability in its battery business to rise in the second half, helping shares surge nearly 10%.

“Sales are expected to grow and profitability is expected to remain robust thanks to greater EV shipments for European automakers and increased sales for cylindrical EV batteries,” LG Chem said.

The company did not mention Tesla, but it supplies small cylindrical-type batteries for the carmaker’s China models.

LG Chem’s energy solutions division, which makes batteries for smartphones and cars, swung to an operating profit in the second quarter, partly due to improved productivity at its Poland factory which caters to European customers like Volkswagen and Audi.

LG Chem said its factory utilization rates have normalized starting May after the coronavirus outbreak had led to temporary factory suspensions at automakers in the U.S. and Europe.

Tesla CEO Elon Musk has said the company would expand its business with Panasonic, CATL and LG Chem, adding that the real limitation to it’s growth is battery cell production at an affordable price.

Musk said Tesla’s Shanghai factories will produce some Model 3 sedans with the so-called lithium-iron-phosphate (LFP) batteries in volume starting later this year.

LG Chem said its batteries have an edge over the cheaper, LFP batteries from Chinese rival and Tesla supplier CATL, saying the latter’s lower energy density makes it difficult to be used for longer-range, large cars.

“The LFP batteries can be used in relatively short-range cars which are sensitive to prices... We believe that our nickel-cobalt-manganese (NCM) batteries can be mainstream globally,” said Chang Seung-se, senior vice president at LG Chem, referring to its nickel-based batteries.

LG Chem, however, said it is trying to “catch up” with LFP batteries in terms of cost competitiveness.

Reporting by Hyunjoo Jin and Heekyong Yang; Additional reporting by Joyce Lee; Editing by Stephen Coates and Krishna Chandra Eluri