SoKor Firm Reviews $1.3B Arizona Battery Investment

LG Energy Solution Ltd., a major supplier to US automakers including Tesla, is reconsidering a $1.3 billion investment plan for an Arizona factory due to "exceptional" economic conditions, Heekyong Yang reported for Reuters.

Photo Insert: LGES shares fell 4.6 percent on Wednesday after news that South Korea's largest battery company is evaluating the plan, which was disclosed only three months ago.

LGES shares fell 4.6 percent on Wednesday after news that South Korea's largest battery company is evaluating the plan, which was disclosed only three months ago.

It comes as more businesses examine their business strategies, fearing a reduction in consumer demand amid raging US inflation fueled mostly by global supply chain disruption. Tesla is laying off 10% of its paid workforce and halting hiring globally, and CEO Elon Musk stated last week that a US recession was more likely than not.

LGES said in a statement that it was currently reviewing various investment options due to "unprecedented economic conditions and investment circumstances in the US," but did not mention the Arizona plant.

An LGES spokesperson said the company would reevaluate its investment in the standalone factory.

LGES stated in a separate regulatory filing that it is reconsidering the timing, amount, and details of its investment in Arizona owing to rising expenses driven by a worsening global economic environment, but that nothing has been decided. LGES is also establishing three facilities in Ohio, Tennessee, and Michigan with General Motors Co., and aims to expand its existing operation in Michigan.

Analysts attributed the investment evaluation to soaring US inflation, which is at its highest level in more than four decades, which might contribute to higher material, construction, and labor prices.

"At this point, it would be unlikely for LGES to withdraw its Arizona investment, the company needs to reassess its profitability forecast amid rising costs due to inflation," said Cho Hyun-ryul, an analyst at Samsung Securities.

LGES announced in March that the Arizona plant would be its first in the United States to produce cylindrical cells, a type of battery used in Tesla and Lucid vehicles. Construction would begin in the second quarter of 2022, with mass production beginning in 2024. LGES also has manufacturing facilities in South Korea, China, Poland, Canada, and Indonesia.

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