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S.Korea's LGES reviews $1.3 billion Arizona battery investment as U.S. inflation bites

Published 29/06/2022, 02:52
© Reuters. FILE PHOTO: The logo of LG Energy Solution is pictured at its office building in Seoul, South Korea, November 23, 2021. Picture taken November 23, 2021.    REUTERS/Kim Hong-Ji/File Photo
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By Heekyong Yang

SEOUL (Reuters) -South Korean battery maker LG Energy Solution Ltd (LGES), a major supplier to U.S. carmakers including Tesla, is reassessing a $1.3 billion investment plan for a Arizona factory citing "unprecedented" economic conditions.

News that South Korea's biggest battery maker is reviewing the plan, unveiled only three months ago, knocked LGES shares down 4.6% on Wednesday. It comes as more firms review business plans, fearing a drop in consumer demand amid roaring U.S. inflation mainly caused by global supply chain disruption.

Tesla is cutting 10% of salaried staff and pausing hiring worldwide, and its Chief Executive Elon Musk predicted last week a U.S. recession was more likely than not.

LEGS said in a statement it was currently reviewing various investment options due to the "unprecedented economic conditions and investment circumstances in the United States."

It did not mention the Arizona plant, but an LGES spokesperson said the company would reevaluate its investment in the standalone factory.

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.

Officials with the Arizona Commerce Authority, which works on economic development in the state, could not immediately be reached to comment.

Elsewhere in the United States, LGES is building three plants with General Motors Co (NYSE:GM) in Ohio, Tennessee and Michigan and plans to expand its existing factory in Michigan. A GM spokesman on Wednesday said those plans remain in place.

Analysts attributed LGES' investment review to elevated U.S. inflation, running at its highest level in more than four decades, which could lead to rising costs for materials, construction as well as labour.

"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," said Cho Hyun-ryul, an analyst at Samsung (LON:0593xq) Securities.

LGES said in March the Arizona plant would be its first U.S. factory to make cylindrical cells, a type of battery that has been used in Tesla and Lucid vehicles. Construction was to begin in the second quarter of 2022, it said, with mass production to start in 2024.

© Reuters. FILE PHOTO: The logo of LG Energy Solution is pictured at its office building in Seoul, South Korea, November 23, 2021. Picture taken November 23, 2021.    REUTERS/Kim Hong-Ji/File Photo

LGES has also production sites in South Korea, China, Poland, Canada and Indonesia.

($1 = 1,290.8000 won)

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