LG Energy Solution recorded operating profit of 113.3 billion won in the second quarter of 2026, returning to the black after two consecutive quarters of losses. Yet the headline figure tells only part of the story. Operating profit collapsed 77% year on year, and the operating margin came to a meagre 1.5%. The results inspire relief that the company has stabilised, and little else.

Back in profit — but why is it still so hard?

LG Energy Solution's core business remains batteries for electric vehicles. The problem is that the global EV market — and the American market in particular — has failed to live up to expectations. A combination of reduced EV subsidies and a broader rollback of environmental regulations has made consumers hesitant to buy electric cars. Ultium Cells, a joint venture with General Motors, had to suspend operations at its first American factory for the entire first half of this year. The plant was built; the cars to fill it were not.

When factories sit idle, fixed costs — rent, labour, depreciation — accumulate regardless. This is the structural trap that is squeezing profitability across the battery industry.

Three factors nonetheless allowed LG Energy Solution to eke out a profit this quarter. First, utilisation rates at its European factories improved; EV penetration in Europe has exceeded 35%, keeping demand relatively healthy. Second, sales of its 46-millimetre-diameter cylindrical battery — known as the 46-series — rose more than 60% quarter on quarter, a product line that carries attractive margins. Third, and most consequentially, the company's energy storage system (ESS) business has grown explosively.

Why energy storage has suddenly become critical

An ESS is, at its simplest, a large-scale battery that stores electricity for later use. Solar and wind power generation stops when the sun sets or the wind drops; ESS captures surplus energy and releases it on demand. Think of a shipping-container-sized battery bank installed next to a power station or data centre.

The recent surge in ESS demand is largely a consequence of the artificial-intelligence boom. Data centres running AI workloads consume extraordinary quantities of electricity. In the United States, grid congestion has made it increasingly difficult to connect new data centres to the public network. Big technology companies — Amazon, Google, Microsoft — are responding by building their own power infrastructure rather than waiting in line. This approach, known as "behind the meter" (BTM) power supply, requires ESS installations as an essential component.

LG Energy Solution's ESS revenue more than quadrupled in the first half of this year compared with the same period in 2025. ESS now accounts for roughly 27–28% of total revenue. A business that was considered peripheral just a year or two ago has become the company's most important lifeline.

The invisible prop: American manufacturing subsidies

Any honest assessment of LG Energy Solution's finances must account for subsidies received under America's Inflation Reduction Act (IRA), which pays battery manufacturers a per-kilowatt-hour credit for cells produced on American soil. The company received 241 billion won in such credits during the second quarter, up 27% from the previous quarter, driven by higher ESS shipments.

These credits account for a substantial portion of the reported operating profit of 113.3 billion won. Strip them out, and the company's underlying manufacturing competitiveness looks considerably thinner. Management acknowledges this. It has set the fourth quarter as its target for making the ESS business profitable even without IRA support.

What will determine the second half

The company expects group revenue to grow more than 20% in the third quarter compared with the second. ESS shipments are forecast to rise at least 50% quarter on quarter; for the full second half, ESS production volumes are expected to more than double relative to the first half.

Risks remain. Simultaneously ramping up multiple factories across the United States, Europe, and Asia generates substantial start-up costs: managing defect rates, training workers, and aligning supply chains are expensive during the stabilisation phase. These costs are likely to weigh on profitability in the third quarter.

Competition from Chinese rivals also intensifies. CATL and other Chinese battery makers are pursuing various routes into the American market on the strength of their price advantage. LG Energy Solution's defensive strategy rests on regulatory barriers — Chinese batteries are largely ineligible for American investment tax credits — and on differentiation through software-integrated operation and maintenance services.

Electric vehicles: not written off

The ESS pivot does not mean LG Energy Solution has abandoned electric vehicles. In the fourth quarter, the company plans to begin producing 46-series cylindrical batteries at a new factory in Arizona. The plant incorporates production lines more than 50% more efficient than the existing facility in Ochang, North Chungcheong Province, and is intended both to capture IRA credits and to serve as a springboard for winning new American customers.

The company is also broadening its product range to address mid- and lower-cost segments. Historically focused on high-performance, premium products, it is now adding "mid-nickel" cells (which reduce nickel content to cut costs) and LFP (lithium iron phosphate) batteries — a cheaper, safer chemistry — to compete for a wider customer base.

Longer-term technology bets

Beyond near-term performance, the company is pressing ahead with next-generation battery development. A sodium-ion battery sample-production line at Ochang is due for completion this year, with trial shipments targeted for 2027. Sodium-ion chemistry uses materials far cheaper than lithium, making it well suited for long-duration ESS applications. Solid-state batteries remain further from commercialisation, but a pilot production line is planned before year-end for technology validation.

The company is also cultivating new markets in batteries for robots and data-centre backup power units. These applications demand high-output, compact cells — distinct from both EV and ESS requirements — and LG Energy Solution says it is already supplying batteries to a number of global robotics firms.

The worst may be over, but the real test is ahead

LG Energy Solution's second-quarter results signal that the company is emerging from its deepest trough. ESS is growing faster than expected and partially offsetting weakness in electric vehicles; cylindrical battery demand remains stable. Management believes the full-year revenue target — growth of more than 20% against 2025 — remains within reach.

Profitability, however, remains fragile. Dependence on government subsidies is high, and the costs of bringing new factories to full capacity will linger. The true measure of the company's competitive standing will only become clear in the fourth quarter, when several plants are expected to reach stable operating levels and the full ESS volume effect materialises. Until then, LG Energy Solution's task is straightforward if demanding: hold on, and keep building.