LG Energy Solution, Ltd. (KRX:373220) closed at ₩358,500 on Friday, September 4. It fell 1.9% on a day the KOSPI rose. The company's market capitalisation was ₩83.9 trillion at Friday's close. That's roughly $60bn at an approximate ₩1,400 per dollar. The stock sits in the lower half of its 52-week range of ₩300,500 to ₩514,000.
The quarterly numbers explain both halves of that. Revenue has risen for four consecutive quarters. It was ₩5.57tn in the second quarter of 2025. It then reached ₩5.70tn, ₩6.14tn and ₩6.55tn in successive quarters. It reached ₩7.56tn in the quarter just reported. That last figure is up 35.8% year on year and 15.3% on the prior quarter. On the top line, this is a company in recovery.
The operating line says something else. Operating income was ₩113.3bn in the second quarter, the first positive quarter after two losses. But that figure includes ₩241bn of US Advanced Manufacturing Production Credits. That's the per-kilowatt-hour subsidy the US pays on cells made in America. Strip the credit out and the company lost ₩127.7bn on its operations. In the first quarter it lost ₩397.5bn on the same basis. Net income was negative in both quarters. The loss was ₩944.0bn in the first and ₩328.6bn in the second.
My view is that the recovery is real and that it belongs to two things: the energy storage business, and the US Treasury. The electric-vehicle cell business that this company was built on is still not covering its costs.
The company's second-quarter release said energy storage system revenue grew 4.6 times year on year. It now accounts for a share of total sales in the high 20s. ESS revenue also rose about 30% quarter on quarter, as North American sites expanded and European grid projects began shipping.
Do the arithmetic on the year-on-year change. Total revenue rose about ₩2.0tn from the second quarter of 2025 to the second quarter of 2026. If ESS was in the high 20s as a share of ₩7.56tn, it was somewhere near ₩2tn in the quarter. A year earlier, at one-4.6th of that, it was under ₩500bn. So ESS added roughly ₩1.5tn of the ₩2.0tn increase. The other product lines, mostly EV cells and small cells, added the rest. That's growth in the low single digits.
That's not a criticism of the strategy. Grid and data centre storage is where the demand is. LG Energy Solution has US plants that can make the cells and collect the credit on them. Korean brokers expect second-half ESS revenue to run about 46% above the first half. If that holds, ESS will be the largest product line by the end of the year.
It is a statement about what the revenue growth means. A battery maker that doubled revenue on EV cells would be showing that its core market had turned. One that did it on ESS is showing that it found a new market while the old one stayed weak.
The tax credit line deserves its own look because it has become the difference between profit and loss.
Credits recognised were ₩189.8bn in the first quarter and ₩241bn in the second, up 27% sequentially. Reported operating income moved from a ₩207.8bn loss to a ₩113.3bn profit, a swing of ₩321bn. The credit accounted for ₩51bn of that swing. The remaining ₩270bn was real operating improvement. That's the number that matters.
So the ex-credit loss narrowed from ₩397.5bn to ₩127.7bn in one quarter. That's a steep improvement. If the pace continued, the core business would break even in the third quarter. But the pace won't necessarily continue. The first-quarter loss was unusually deep because of low utilisation and a seasonal lull. So part of the second-quarter gain is a return to normal rather than a new trend.
The credit itself carries policy risk. The US pays it under US law. That law on clean-energy subsidies has changed more than once since 2022. I wrote on August 28 that the company records large tax expense against pretax losses, likely because profitable US entities pay tax while Korean losses can't offset them. The credit and that tax problem are two sides of the same structure. The profits live in America, and so does the subsidy.
At ₩83.9 trillion of market value against ₩30.29tn of equity, the shares trade at about 2.8 times book. Retained earnings are negative ₩723bn after the two loss-making quarters. The company has now distributed or lost more than it has earned since listing.
Non-current liabilities were ₩28.79tn at the end of June, up from ₩22.07tn three months earlier. Cash rose to ₩7.17tn from ₩3.74tn in the same quarter. So the company raised money and kept it. Capital spending was ₩1.60tn in the quarter, down from ₩2.87tn a year earlier. The company is spending less on plant, borrowing more, and holding the difference as cash. That is what a company does when it wants a buffer through a period it doesn't fully trust.
I noted last week that revenue per won of plant fell from 1.43 in fiscal 2023 to 0.58 in fiscal 2025. The second quarter, annualised, gets that back only to about 0.66. The plants are still under-used. That's why the core loses money even at record revenue.
Two things could break the recovery story from here.
The first is competition in storage. ESS cells are less demanding than EV cells. That's why Chinese makers dominate the global market on price. LG Energy Solution's advantage is location. Cells made in US plants qualify for the credit and avoid tariffs. If the US relaxes its restrictions on Chinese-made cells, that advantage shrinks. It also shrinks if Chinese makers build US plants of their own. The 4.6-times growth rate is partly a function of being one of few qualified suppliers.
The second is the credit itself. The credit is ₩241bn a quarter and rising. That's now close to a trillion won a year of operating income the company does not generate itself. Any change to the rate, the eligibility rules, or the phase-out schedule flows straight to the operating line.
A third risk is the one already visible. Net income was negative in both quarters of 2026 even with the credit. Interest costs on ₩28.79tn of long-term liabilities sit between operating income and the bottom line. So does the tax structure. The company can post an operating profit and still lose money for shareholders. It did.
The third-quarter preliminary results are due in early October as a fair disclosure (공정공시). They will give revenue and operating income. The number to compute is operating income minus the credit. If that is positive for the first time since 2025, the core business has turned. Then the ESS story is a cell story too. If it's still negative while revenue sets another record, the company is growing into a subsidy rather than into a market.
The second thing to watch is the ESS share of revenue. Above 30% in the third quarter would confirm the mix shift the brokers expect. It would also mean that more than a third of this company is now a grid-storage supplier. The multiple of 2.8 times book was not built on that.
kstock reads DART every morning and writes up what moved — the contract, the buyback, the number that does not add up. The daily post and a Saturday roundup, by email.