LG Energy Solution Q1 2026 — AMPC Collapse Masks a Narrowing Pre-Incentive Loss

LG Energy Solution's pre-incentive operating loss narrowed to approximately KRW 398B in Q1 2026 from KRW 454.8B in Q4 2025, a roughly 12% sequential improvement invisible in the headline figure. The reported operating loss widenedto KRW 207.8B from KRW 122B because the 45X credit cushion collapsed faster than the underlying business improved. The company is marginally healthier on a pre-incentive basis. The margin of improvement is thin relative to the scale of the loss, and the ESS ramp costs management flagged as a Q1 drag have not yet peaked.

Decomposition Table

All figures KRW. USD equivalents at approximate average quarterly rates stated per column. This is the first cycle in which this decomposition has been published; prior-quarter figures are reconstructed from earnings releases rather than from a prior published analysis. Q2 and Q3 2025 could not be populated because the decomposition format did not exist for those quarters and the AMPC figures were not disclosed in a consistent format across English-language materials available this cycle.

	Q1 2025 (~1,390 KRW/USD)	Q4 2025 (~1,440 KRW/USD)	Q1 2026 (~1,455 KRW/USD)
Reported revenue	6.3T (~$4.5B)	6.1T (~$4.2B) ¹	6.6T (~$4.5B) ²
Reported operating profit/(loss)	375B (~$270M)	(122B) (~−$85M)	(207.8B) (~−$143M)
Disclosed US production incentives (45X)	458B	332.8B	189.8B
Adjusted operating profit/(loss) ³	(83B)	(454.8B)	(397.6B)
Reported utilization rate	— ⁴	— ⁴	— ⁴
ASP direction	—	—	Down (mix-driven) ⁵
EV vs. ESS revenue mix	—	—	ESS: mid-20% ⁶

¹ Original reporting basis. Starting Q1 2026, AMPC is embedded in revenue with prior periods restated. The restated Q4 2025 revenue figure is approximately KRW 6.43–6.52T based on the company's stated +1.2% QoQ growth into Q1 2026. See comparability note below.

² Includes KRW 189.8B of production incentives reclassified into revenue.

³ Reported operating profit/(loss) minus disclosed production incentives. This is the core analytical figure.

⁴ LG Energy Solution does not disclose quarterly utilization. The most recent figure is the 2025 annual average of 47.6% (Seoul Economic Daily, citing annual report), down from 73.6% in 2022. The denominator is shifting as five North American ESS sites enter production simultaneously. No third-party Q1 2026 estimate was identified.

⁵ Management cited "deterioration of product mix resulting from reduced sales of pouch-type EV batteries in North America." No $/kWh magnitude disclosed.

⁶ Per Q1 2026 earnings call: ESS moved from "less than 10% last year" to "mid-20% range," with guidance toward mid-30% by year-end.

45X Isolation

Q1 2025 was the last quarter where LG Energy Solution was profitable on a reported basis. KRW 458B in AMPC against KRW 375B in operating profit meant the pre-incentive loss was already KRW 83B. By Q4 2025, that loss had ballooned to KRW 454.8B as EV volumes deteriorated and ESS conversion costs accumulated. Q1 2026 brought it back to KRW 397.6B. A KRW 57B sequential improvement, real but modest.

The headline moved the other direction because AMPC declined 59% YoY and 43% QoQ. Since 45X credits are earned per kWh produced and sold in North America, the AMPC trajectory is the cleanest volume proxy available for LG's US EV production. That proxy says eligible production is running at about 40% of year-ago levels. Management attributed the decline to reduced pouch-type EV volumes shipped to a "strategic customer" (unnamed, context points to GM or Stellantis).

One additional data point from a Korean-language source (AI-translated, not confirmed in English-language primary materials): the KRW 189.8B figure may exclude a portion of production incentives shared with customers under supply agreements. If accurate, total 45X benefit generated by LG's North American production is larger than KRW 189.8B, with the pass-through functioning as a pricing concession to secure offtake. Some of the AMPC compression visible in the P&L would then be flowing through to customers as lower effective cell prices rather than simply disappearing from LG's economics. Unconfirmed. Treat accordingly.

Utilization Trend

No Q1 2026 utilization rate is available from any source identified this cycle. The 2025 annual average of 47.6% is the most recent disclosed figure, and the denominator question makes it progressively less useful.

LG brought five North American ESS production sites online between mid-2025 and early 2026: Holland, Michigan (LFP, approximately 17 GWh nameplate); NextStar Energy in Windsor (converted from EV); Lansing, Michigan; and two JV lines temporarily reallocated to ESS. Each site adds nameplate capacity to the denominator while operating well below full utilization during ramp. Composite utilization could decline even if total output is flat or rising.

SNE Research reported 23.7 GWh of global battery installations attributed to LG in Q1 2026, up 6.6% YoY. This is an installations figure, not production, and the attribution methodology for JV output is unspecified. It confirms modest global volume growth, with the growth coming from ESS while EV volumes contract.

The second derivative on utilization is indeterminate from available data. EV utilization may be decelerating its decline (management noted "some signs of improvement in March" for US EV sales), but the simultaneous capacity expansion for ESS makes the composite figure analytically unreliable as a health indicator this cycle. EV and ESS utilization need to be tracked separately once segmented figures become available. They are not available now.

Guidance vs. Actuals

At the Q4 2025 earnings release (January 29, 2026), LG guided full-year 2026 revenue growth of 10–20% with a "lower first half, higher second half" trajectory. Shinhan Investment Corp. framed the pattern explicitly: H1 weakness from the Ultium Cells Plant 1/2 suspension, with ESS demand expansion providing H2 momentum. Management guided ESS production capacity to exceed 60 GWh globally in 2026, with 80%+ in North America, and targeted 90 GWh of new ESS orders against a 140 GWh backlog.

Q1 2026 landed within the directional envelope. Revenue rose slightly QoQ. The operating loss widened. ESS revenue share reached mid-20%, actually ahead of the implied pace needed to hit mid-30% by year-end. The ESS ramp cost headwind was anticipated.

The magnitude of AMPC compression was not quantified in the guidance. A 43% QoQ decline suggests the "lower H1" framing understated the EV volume problem. The Ultium Cells suspension was known, but the broader pouch-type EV shipment reduction appears to have exceeded the planned impact.

Both drags are present simultaneously in Q1: ESS ramp costs and EV volume weakness. The pre-incentive loss narrowed QoQ despite absorbing startup costs from five sites. ESS revenue share is scaling faster than EV revenue is contracting. The earnings call confirmed full-year revenue guidance remains in the 10–20% growth range, and management reiterated the 50 GWh+ US ESS production target.

The data favors the H2 thesis more than the headline does, but narrowly. Ramp costs are front-loaded by nature and should compress as yields stabilize across the five sites. That thesis depends on yields actually stabilizing. Holland has been producing LFP cells since mid-2025. No public yield data, cycle life validation, or customer acceptance disclosures have surfaced for Holland or any of the other four sites in the nine months since first production. Normal commercial opacity, or a signal that stabilization is slower than the timeline assumes. The distinction matters because the ramp cost trajectory that underwrites the H2 inflection cannot be independently verified without it.

Then there is the margin composition problem. Even if H2 recovery materializes on a volume basis, it may arrive with a structurally lower margin profile than the one that existed when EV pouch cells and higher AMPC dominated. LFP ESS cells carry lower ASPs than high-nickel pouch EV cells. Management's own language confirms the mix shift is compressing margins: "deterioration of product mix." If the ESS pivot is permanent, the revenue base supports a structurally lower margin even at full utilization. Volume recovery and margin reset can happen in the same quarter. The company has not disclosed ESS-specific unit economics that would resolve this.

The non-operating loss of KRW 650.8B in Q1 2026 deserves separate attention: driven by disposal of obsolete PP&E and interest expense, it pushed the net loss to KRW 945B. The PP&E disposal is the direct cash cost of converting EV lines to ESS. Unlikely to recur at this scale, though it confirms the conversion remains in its capital-intensive phase. The 90 GWh ESS order target, per standing practice, should be treated as directional; the company has not specified how much of the 140 GWh backlog represents contractually committed volumes versus framework agreements.

Sourcing Decision Frame

For anyone evaluating LG Energy Solution as an ESS supplier, Q1 2026 pulls the risk profile in competing directions. The Holland LFP facility has been producing cells since mid-2025, with confirmed deliveries to Qcells under a 4.8 GWh agreement. The $4.3B Tesla supply agreement for LFP prismatic cells at Lansing (H2 2027 mass production) validates commercial demand. FEOC-compliant LFP capacity in the US remains scarce, and LG's five-site network is the largest non-Chinese ESS production footprint under construction. That strategic position holds. The financial cushion underneath it has eroded materially over two quarters. With approximately 40% US revenue exposure and AMPC compressing toward levels that no longer cover the underlying loss, LG's ability to absorb ramp-period pricing pressure is thinner than it was six months ago. The company has not yet demonstrated that ESS margins at scale can replace what EV volumes and AMPC used to provide. Until Holland and the other sites show stabilized yields and the ESS margin structure becomes visible in reported results, the qualification case rests on strategic positioning and order backlog rather than demonstrated unit economics.

This is the first cycle of this decomposition for LG Energy Solution. This analysis relies on English-language IR materials, earnings release, and earnings call transcript. The Korean-language transcript may contain additional forward-guidance nuance not captured here. Third-party data from SNE Research (installations) and Seoul Economic Daily (utilization) are sourced and named where used.