Report: LGES Reviews Battery Investment In Arizona

Worsening economic conditions prompt the company to double check on the investment plan.

By: Mark Kane

Jul 1, 2022 at 8:54am ET

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Just over three months ago, we heard about the new LG Energy Solution (LGES)'s investment in a cylindrical lithium-ion battery factory in Queen Creek, Arizona.

At the time, it was expected that the 1.7 trillion KRW ($1.3 billion) project would start quite quickly, as the construction of the plant was set to begin in the second quarter. Series production was scheduled for the second half of 2024 with up to 11 GWh of batteries annually.

However, according to Reuters, it's not certain whether the new plant will be built as planned, because LG Energy Solution is reviewing the project, including "timing, size and details."

The reason mentioned in the article is "unprecedented economic conditions and investment circumstances in the United States," with a link to high inflation.

"In a separate regulatory filing, LGES said it has been reviewing the timing, size and details of its investment in Arizona due to rising costs caused by worsening global economic environment, adding that nothing has been decided."

Nothing has been decided yet, but there might be a reasonable fear of a slowdown. Maybe the company simply needs to double check the business plan and secure additional financing to cover potentially higher costs.

Hopefully the perspectives for the project are still positive. The reassessment will probably give the answer whether customers (undisclosed) are still expecting to order batteries in high enough volume at the required price.

Cho Hyun-ryul, an analyst at Samsung Securities, said:

"At this point, it would be unlikely for LGES to withdraw its Arizona investment, the company needs to reassess its profitability forecast amid rising cost due to inflation,"

What do you think?

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For LG Energy Solution, the Arizona factory is a standalone project, which means it's a much higher risk than a long-term joint venture with a large carmaker (like General Motors or Stellantis).

It's also a plant focused on cylindrical lithium-ion cells (2170-type as we understand), which is used only by some of the companies (including Tesla, Rivian, Lucid and Proterra to name a few).