LG Energy Solution Ltd

KRX:373220

Q2-2025 Earnings Call

[Sara Hwang, executive]

[Interpreted] Good morning and evening. This is Sara Hwang, Head of IR from LG Energy Solution. Thank you for joining our Q2 2025 earnings conference call.

First, I'd like to introduce who are present today. Lee Chang Sil, CFO; Jang Seung-kwon, in charge of Finance and Accounting Group; Lee Sang-Hyeon, in charge of Finance; [indiscernible], in charge of Planning and Management; [indiscernible], in charge of Advanced Automotive Battery Planning and Management; [indiscernible], in charge of Mobility and IT Battery Planning and Management; Kim Min-Soo, in charge of ESS Battery Planning and Management; and [ Lee Hyeon Hee ], in charge of Corporate Strategy.

For your reference, the presentation for business performance and strategy will be conducted with simultaneous interpretation, after which we will have Q&A with consecutive interpretation. The presentation slide will be webcast live, and you can download the material from the corporate website.

In this conference call, I'm going to share our 2025 second quarter result and then CFO will share the recent business environment trend, key achievements and action plans for the second half, followed by Q&A session. Please note that the forward-looking statements included in the call are subject to change according to amendments in future business environment and corporate strategy.

First, let me talk about our Q2 business performance. First, shipment in North America increased due to stable product sales for EV and start of production at the new ESS site in Michigan. However, due to growing policy volatility during the quarter such as tariffs and customers' weakening purchase intention, the corporate-wide shipment decreased slightly Q-o-Q. With the softening trend in metal prices being reflected into ASP, the revenue declined by 11.2% Q-o-Q to record KRW 5.6 trillion.

In the automotive battery business, while the shipment volume increase in North America and Asia due to the volumes for the customers showing stable selling trends, the shipment volume in Europe decreased due to major customers' conservative battery inventory management, even with good EV sales. In the small battery business, despite the seasonal downturn in pouch demand for IT devices, the shipment increased slightly due to the full-scale sales of upgraded cylindrical product for EV and proactive response to LEV demand.

In the ESS battery business, with continued seasonal downturn impact, the ESS shipment declined Q-o-Q due to the reduction of the U.S. bulk shipment from China impacted by high tariff despite the start of operation at a new capacity in the U.S.

Regarding profit, despite the revenue decrease, with the product mix improvement from increased production of high-margin products and projects, along with considerable cost efficiency enhancement and cost innovation efforts such as material cost reduction, OP, excluding the North America production incentive, turned surplus for the first time in 6 quarters. With the North America production incentive recording KRW 490.8 billion, OP in Q2 marked a 31.4% increase to post KRW 492.2 billion and OP improved 2.8 percentage points Q-o-Q to record 8.8%.

As for major nonoperating items, even with translation gains on foreign currency-denominated borrowings and others impacted by a strong won against the USD at quarter end, due to net interest expense and evaluation loss from derivative relating to foreign currency-denominated corporate bond, the nonoperating loss amounted to KRW 590.2 billion. With the net loss before tax recording KRW 27 billion, the net profit marked KRW 90.6 billion.

Next, financial position. The asset at quarter end increased by about KRW 0.7 trillion compared to the previous quarter end to stand at KRW 63 trillion due to increase in cash and cash equivalents. Liabilities increased by about KRW 3.7 trillion to reach KRW 34.7 trillion compared to the previous quarter end due to borrowings increase, including the issuance of foreign currency-denominated bonds. Equity totaled KRW 28.3 trillion, down by about KRW 3 trillion due to foreign currency translation difference of overseas subsidiaries in line with significant interest rate fluctuation at quarter end.

The liability-to-equity ratio recorded 123% with net debt -- with debt-to-equity ratio of 74% and net debt-to-equity ratio of 54%. During this quarter, EBITDA generation was about KRW 1.4 trillion and EBITDA margin improved by 5 percentage points compared to the previous quarter end to 25%.

Regarding cash flow, during the quarter, even with CapEx spending of KRW 2.7 trillion for the North America capacity, due to cash inflow of around KRW 4.7 trillion, including funding of KRW 3.2 trillion such as corporate bond issuance, the cash balance increased by around KRW 1.9 trillion compared to quarter end to reach KRW 5.4 trillion.

With this, let me end my explanation. Next, CFO will present you on the second half business environment and our key achievement and action plans.

[Chang Sil Lee, executive]

[Interpreted] Good morning and evening. This is CFO, Lee Chang Sil. Amid the continuing global economy and geopolitical uncertainties since the beginning of the year as the U.S. Tax Cut Act, which has had a significant impact on the battery industry, was confirmed, the volatility since gradually subsidizing. Accordingly, I'd like to explain the business environment landscape and our action plan for the second half of the year, together with the major policy updates.

First, since the Trump administration took office, as you know very well, the U.S. has been leveraging tariff actively as a tool for diplomatic and security strategies. Starting in April, a 10% universal tariff has been applied to all imports into the U.S., and now it is pressuring by applying different tariff rates for each country through negotiations. The China negotiations appear to be underway in multiple areas, including rare earth, but currently, Chinese products face high tariff of 73% for EV batteries and 41% for ESS batteries, implying its continued containment stance against China.

The IRA, which has been affecting the EV and battery industries in North America most directly, was amended due to the implementation of the OBBBA this month. Consequently, the EV subsidy for consumers up to $7,500 will expire after the end of this September. Such tariff impositions and early termination of the EV subsidy put a burden on OEM and highly likely to raise car price tags, slowing the growth rate of the North American EV market for the time being.

However, as now EVs incorporate AI features and self-driving tech services become visible, as more consumers are building -- experiencing autonomous driving, the intrinsic value of the EV is expected to go up more, bringing a bigger EV momentum for demand in the long run. Meanwhile, the amended IRA includes a new PFE, or prohibited foreign entity, clause, adding a supply chain requirement to the eligibility criteria of the AMPC for battery producers and ITC for companies investing in clean energy plant. In other words, the entities threatening the national security, key Chinese battery companies and entities designated as PFE deemed to be under significant influence of those entities cannot receive tax credits when investing in batteries or power facility in the U.S.

Additionally, all other manufacturers must ensure that the proportion of material sourced from the PFEs does not exceed 40% of direct material costs starting next year, and the proportion should gradually go down further by 2030. Therefore, we think that PFE companies will face many hurdles in entering the U.S. market directly. For raw material sourcing as well, it will become more important to secure non-PFE partners with price and quality competitiveness and operate NCM strategically within the allowed PFE sourcing scope.

Despite initial concerns about early phaseout, the AMPC will remain intact until 2032 without changes in the effective period. The original draft regarding the ESS installation project among the ITC-eligible items also remain the same. So if the construction begins by 2035, they can receive up to 40% of the CapEx as tax credits. In particular, in North America, the growing AI trend is accelerating data center expansion by big tech firms, which is causing a dramatic spike in power consumption.

That said, in addition to the demand arising from new renewable power plants, the need for ESS installations eligible for tax credits is rapidly increasing even at existing power plants. Additionally, if the local sourcing requirement in the U.S. are met, the ITC benefit can be maximized, further strengthening customers' demand for locally produced ESS in the ex China region.

Meanwhile, the EU announced a policy for investment support of EUR 850 million for the regional battery production projects to strengthen the local supply chain for EV, and the U.K. has also reintroduced EV purchase subsidies, which stopped in June 2022, with a budget of around GBP 650 million, actively boosting sales of domestically produced EVs. As both North America and Europe strive to expand their local battery supply chains and promote demand for domestically produced EVs like this, the customer trust and preference for battery companies capable of responding to local demand with stable operation capabilities will become even higher.

Amidst such considerable changing dynamics, LG Energy Solution is realizing notable progress. First, at our Michigan site, this May, we began mass-producing LFP-based ESS long cells, which offer improved energy density and cost competitiveness, thus securing the ESS production site in North America most preemptively and most promptly in the industry. Building on this, we would like to continue to respond to customers' ex China needs proactively. Also, as we are under active discussion with multiple customers with our diverse form factor portfolio, including prismatic type, we will be able to continue winning meaningful ESS orders focusing on power grids in North America.

Also for the new 46-series supply contract we signed with Chery Automobile in June, we plan to ship out from the second half of this year in Ochang site in Korea. And it holds significant meaning as our first cylindrical battery order with a Chinese OEM that typically prefers adopting domestic batteries. And we think that based on this, we'll be able to build a more diversified customer portfolio. Also, we have decided to establish a joint venture for preprocessing for used batteries with Toyota Tsusho in North Carolina, preparing our resource circulation system step by step across North America following our efforts in Europe.

Now let me explain the action plan for the latter half of this year. Although challenging business environment is expected in the second half as well, we intend to continue meaningful improvement in achievement and financial performance from the second quarter onwards by securing fundamental competitiveness through detailed action plans. First, in response to the EV demand slowdown, we aim to address this by increasing the revenue of the ESS business with rapidly growing power grid-centric demand and expanding the mass production of the new form factor for future growth and low -- new low to mid-chemistries to optimize the operation of the production line and maximize the capacity utilization as well.

Furthermore, we must reduce fixed cost burden. So we are resetting capacity expansion plans in line with the demand landscape and adjusting the timing and scale of ongoing projects in prompt response to the changes. And also, we are actively reallocating internal resources, including human resource operations, from the company-wide perspective with speed. Additionally, to strengthen our sourcing competitiveness, we are lowering the material cost ratio by persistently identifying low-cost materials and actively managing optimized supply chain strategies for each project through multidimensional assessment on supply regions, performance and cost by material type.

Regarding our business portfolio, to actively respond to the North American demand for decoupling from China and localization, with the ramp-up at our ESS site in Michigan, we will secure a stable 17-gigawatt hour level of ESS capacity in North America by the end of this year. Additionally, by converting some EV battery lines to ESS, we're going to expand the business by establishing over 30 gigawatt hour of ESS capacity in North America by the end of 2026.

Also, to respond to the European market where low- to mid-end EVs are mainly growing, we are preparing mass production of new cost-competitive products such as high-voltage mid-nickel and LFP batteries at our Poland plant in Europe. Also, we will preemptively secure additional orders for both EV and ESS applications with a new form factor like cylindrical 46-series and prismatic batteries while also exploring new markets such as new mobility and humanoid robots.

Lastly, we will also go all out for the development of competitive technologies. To meet customer needs through cost reduction, we will develop LFP batteries for EV applied with new processes and dry electrode processes, differentiating ourselves through enhanced cost competitiveness and fast charging performance. And we intend to develop LFP batteries for ESS with a new pouch product with a step-up in energy density while also preparing new form factor product with improved product specification through high-density design and cost competitiveness.

The newly developed LMR, or lithium manganese-rich, chemistry targeted for deployment in new-gen EVs of key customers by 2028 aims to achieve energy density improvement of over 30% compared to LFP while maintaining a similar cost. We aim to introduce fast-charging technology under 10 minutes across both 46-series and EV pouch products in the near future. Also, the dry electrode process, which is a key driver of cost innovation, will secure mass producibility in Ochang, Korea, establishing a system for sample supply within this year. From R&D perspective, we will swiftly secure materials and foundation technologies suitable for new products and achieve significant reduction in the lead time from product development to mass production based on AI and digital transformation.

Investors, analysts and shareholders, despite the challenged business environment, LG Energy Solution has successfully turned a profit in the second quarter without factoring in North America production incentive by firmly building on our internal strength and accumulated capabilities. The battery market, which has been on a growth trajectory, is now going through an unprecedentedly tough period of adjustment. However, by securing fundamental and structural competitiveness through swift response to market changes, we must achieve sustainable profit-making capabilities of our own. Thank you.

This is the end of the presentation. We'll have a Q&A session. [Operator Instructions]

[Operator]

[Foreign Language] [Operator Instructions] The first question will be provided by Dong Jin Kang from Hyundai Motor Securities.

[Dong Jin Kang, analyst]

[Interpreted] I do think that the second quarter performance has been strong. And if you look at the market, however, I do think that in general, there are concerns about the second half because of the uncertainties that still prevail. So could you provide your third quarter and also second half expectations in terms of the business performance going forward?

The second question that I would like to ask you is about your North American ESS business, which is something that you have emphasized during your presentation. I do believe that the market also believes that there will be high growth within this area. However, how are you planning to address the demand within the market? And if you could share any new orders or your outlook for the business, that would be appreciated.

[Chang Sil Lee, executive]

[Interpreted] So thank you for asking these questions. I do believe that the questions you have asked are what are the center of interest right now for the market. So thank you for them. For the first question you asked, which was the second half outlook for our business, I can address this. I am the CFO, Lee Chang Sil. And maybe for the second question, I can ask the related business division to address that question.

So as you are aware, in the U.S. right now, from country to country, the U.S. is coming to an agreement with various countries about their tariff policies. And as a result of that -- in addition to that, the One Big Beautiful Bill Act has been finalized, which had led to some of the uncertainties related to the demand. So going forward, we do think that somewhat -- some of the volatility that we have seen within the secondary battery industry would be coming into a more moderate phase going forward.

However, as mentioned before, because the IRA in itself has been amended with new policies on one side for the consumer EV subsidies, it will be coming to an end earlier than initially expected. And we do think that naturally in the second half, the EV demand will be impacted. However, if you look at the EV auto sales trends in itself, they remain solid. And with regards to the battery inventory that remains within the industry, we do think that towards the second half of the year, there will be adjustments that will be taking place.

So if we look at the market, for the cylindrical EV customers that we have, there will be new models that will be launched in the market in the second half of the year. And also for IT manufacturers, there are also demands related to the new models that will be generated. So we do think that this will drive an increase in the mobility and IT device-related batteries. In addition to that, related to grid-related projects from the third quarter, we will be full fledgedly shipping out various production volumes from our site in Michigan. So in the second half, we do think that there will be a significant increase in our ESS-related revenue that we will be able to achieve.

To talk about our overall profitability, we do think that there will be a full-fledged adjustments of the existing CapEx plans that we have. And therefore, for a certain period of time, there will be somewhat of a slowdown in EV demand, which we think we can overcover with the ESS business growth that we will be able to see. So we are trying to use the existing capacity that we have in terms of the utilization to maximize it as much as possible. In addition to that, there will be some reallocation of resources and also some cost-efficiency efforts that will be put in place to minimize our overall fixed cost.

In addition to that, we will be trying to decreasing our overall material cost ratio by engaging in cost innovation efforts. And at the same time, for mobility and IT devices and ESS-related demand, which we do believe will continue to grow, we do think that this will continue to contribute to our profitability. So using the second quarter as a standpoint, we will try to continue with the meaningful momentum that we have been able to generate.

[Min-Soo Kim, executive]

[Interpreted] For the second question that you have asked, which was about how we would be dealing with the strong ESS demand that we see in North America in terms of any new orders that we have and the outlook going forward, maybe I can address that question. I am from the ESS Battery Planning and Management department. My name is Kim Min-Soo.

So if you look at the current situation, in the North American market, we do have a strong competitive edge as being the only company that is able to produce LFP ESS products in North America and supply them on the ground. So therefore -- not only that, in terms of market demand and also our customer needs, we are preparing a product portfolio that would be able to satisfy these elements.

In addition to that, if you look at the market, because there are more AI data centers that are being created and as a result of that, overall power demand is increasing, surrounding the power grid in itself, there is a very high growth that will continue within the market, representing a CAGR of more than 20%. So as a result of -- in addition to that, on the ESS tax benefit side, these tax benefits are being maintained, which does provide a backdrop of policy support for the market. So we think this all in all will lead to a much stronger demand going forward in terms of the demand momentum.

So as of the end of June for the company, we already have been able to secure an order book that is above 50 gigawatt hours. And currently, we also continue to see new order momentum flowing in from a wide variety of customers, including local developers and also utility companies. So as of the current time for the company, including new form factors that we have for ESS batteries, we do have various discussions on the supply side for a wide variety of LFP products that are ongoing. And in addition to that, there are also discussions for a multiple number of large-scale power grid-related projects. So once these orders are completed, we will make sure to communicate with the market accordingly.

[Operator]

[Foreign Language] The next question will be presented by Hyun-Soo Kim from Hana Securities.

[Hyun-So Kim, analyst]

[Interpreted] I have 2 questions that I would like to ask you about policy. The first is that, as you have just mentioned in the U.S., the OBBBA has been finalized. And as a result of that, I do think that there will be impacts on the EV subsidies that were provided and also the renewable energy market as a whole. So in terms of the demand changes that may take place as a result of that, could you break it down between what changes you see on the EV demand side and on the ESS demand side? And talk about what strategies you're going to implement to address these changes accordingly.

The second question that I would like to ask you is that if you look at the AMPC- and ITC-related changes that have been taking place, with the new act, there is a new PFE cost that does need to be satisfied from 2026 to be eligible for AMPC and ITC credit. So this is a new condition that has been added. What do you -- what impact do you see coming from this? And how are you planning to deal with this? And how is the company preparing for this going forward?

[Unknown Executive]

[Interpreted] So for the first question that you have asked with regards the changes that have been taking place in the tax act, what the overall impact would be on EV and ESS demand and what would be our strategy to address this going forward, maybe I can address that. From corporate strategy, I am [ Lee Hyeon Hee ].

So as the CFO did explain in detail in the presentation before, if we look at the overall situation, from the end of September, the overall EV subsidiaries that would have been provided will be going away. And there is a new prohibited foreign entity or PFE procurement condition that has been added on. So we do think that this will have an impact on the EV and ESS business environment.

To talk about the EV side first, right now, because the subsidies will be abolished going forward, we do think that on the OEM side, they will be pacing themselves a bit more in terms of their EV business expansion. And after the subsidies end, from that point of time until the early part or first half of next year, we do think that there will be an overall slowdown in the demand within the market. Nevertheless, we do think that the OEMs will be continuously expanding their low-end EV lineup so that they can lessen the burden that consumers may feel when purchasing new cars. And in addition to that, as autonomous driving becomes fully commercialized, with that, we do think that, that will increase consumers' willingness to pay for EV vehicles.

So for the company, from the first half of next year, we will be utilizing and putting our North American JV online. And we do think that, that will lead to a gradual increase in the overall volume growth that we see. So therefore, for EV customers that we have, we're talking about prismatic battery development, LFP and also lower-cost LMR solutions so that we can strengthen our fundamental competitiveness within this area.

On the ESS side, right now for power grid-related market demand, we do believe that next year, the overall demand growth will be above 60%, and that would be a very high level of growth that we would expect. So since the ITC credits are something that will be maintained, we don't believe that there will be a large overall change or impact from this. And because we do have local production capabilities and there continues to be a preference for non-Chinese providers, we do think that, that trend will continue going forward.

So therefore, utilizing the better conditions that we have on the supply chain side, we do think that we can apply lower-cost materials and strengthen our cost competitiveness with -- at the same time, also utilize the competitive edge that we have as being the only company that is able to provide LFP ESS batteries on the ground. So in light of the increasing demand or sharp increase in demand that we see going forward, we will continue to engage in marketing activities and continue to win orders going forward.

Yes. This is [ Lee Hyeon Hee ] again, and maybe I can address your second question, which was the new conditions for PFE that have been installed, what's the overall preparedness that we have or strategy that we have to achieve this and what we are going to do going forward. So even before the current changes take place, the company had been planning to create a supply chain that satisfied the previous FEOC conditions under the IRA that we require to be eligible for consumer subsidies. If you look at the new PFE-related procurement conditions, in some areas, we do actually believe that they are less demanding than the previous FEOC conditions. So we do think that we can utilize this to optimize our supply chain.

So first, under the current supply chain conditions, if you look at manufacturers or producers, they will be allowed to procure a certain percentage from PFEs each year. And these conditions will be limited to direct material. So we do think that this enables us to utilize some low-cost supply chains that are out there. In addition, since EV consumer subsidies will be abolished, we will no longer be required to source battery parts from the U.S. or critical raw materials from FTA countries. So this provides us more discretion in the way that we operate our overall supply chain.

And at the same time, for materials that we will be sourcing to be compliant with the PFE conditions, in the short term, that would be a bit more challenging. I do think that we would have a bit more time to prepare for the situation going forward. So thus, we can effectively utilize our existing suppliers, which have long-term supply capabilities and cost competitiveness, while over the mid- to long term, we would be able to dualize our supplier base and also ensure that we satisfy PFE conditions so that at the same time, we can increase or strengthen our cost competitiveness and improve our profitability.

[Operator]

[Foreign Language] The following question will be presented by Tim Bush from UBS Securities.

[Timothy Bush, analyst]

I have 2 questions. The first is on ESS. So considering your new ESS LFP capacity in the U.S. that started operation in the second quarter, what is the outlook for further ESS capacity expansion? And the second question is on overall North America demand. So you had a very solid first half. What is the outlook for the second half of the year? [Foreign Language]

[Min-Soo Kim, executive]

[Interpreted] So for the first question that you asked, maybe I can address that. This is Kim Min-Soo from the ESS battery planning and management side. So as you have mentioned, from May of this year from our Michigan site, we have been commercially producing LFP batteries for ESS purposes, so utilizing the overall capabilities that we have accumulated in North America in conducting local production and operations. And adding to that, also using the LFP production know-how that we have accumulated in China, we are able to stably produce and supply as of the current time.

So if we look at the demand in the U.S. for power grid-related ESSs, we do expect that versus our expectations, the market is growing at a faster pace. And we do want to maximize the business opportunity that this does present. So this year, we had expected that overall, approximately 17 gigawatt hours would be this capacity that we would have from the Michigan capacity. This is something that we want to stably ramp up.

And at the same time, from the existing sites that we have, we are going to transition or review actively the possibility of transitioning some of the EV capacity that we have for ESS purposes. By doing this, by 2026, we want to reach 30 gigawatt hours or higher in total capacity. So this is the overall target under which we are conducting discussions.

In addition, from a product standpoint also, in addition to the current long cell LFP products that we have and utilizing the SI capabilities that we have, we do want to provide a differentiated product competitiveness and at the same time, also have innovation in terms of materials and design. So we are in the process right now of developing large capacity -- new large-capacity cells. So by stably expanding our business within the U.S. and also gaining more market share, this would be the overall direction that we would be heading going forward.

[Chang Sil Lee, executive]

[Interpreted] So this is the CFO, Lee Chang Sil. Maybe I can address your second question. I do think that although we have discussed this before, you still have a lot of questions about the second half outlook for the overall business. So maybe I can briefly provide an explanation. So if you look at the first half U.S. shipments that we had, which was relatively strong, and if you look at the drivers behind that, first, I do think that it was that for our key customers, their overall EV sales performance in itself was better than they initially expected. So that was one factor.

However, added to that, I do think that on the customer side, there was a lot of preemptive pull-in demand that they had because there were a lot of variables that could take place, for example, a lot of policy uncertainties within the market. So if you look at the second half, because the EV subsidies will be going away after September, we do think that, that will lead the OEMs to pace themselves in terms of their overall electrification expansion. And added to that, we do think that relatively, there may be more conservative inventory management as a result of that. So therefore, in terms of the growth momentum, I do think that for the time being, it cannot help but be somewhat limited.

However, that have been said, on the North American ESS side and the overall customer demand there, as mentioned before, it is stronger than -- much stronger than we had expected. And as the company that -- the only company that has local ESS production capabilities, we do think this would be a very attractive opportunity for our company. So as we have said for the time being, we do think that the void that we have on the EV side can be somewhat fulfilled with ESS demand that we would have going forward.

For the company, we will continue to review the market demand and customer needs so that we can come up with the most efficient operations for the capacity that we have, and this is something that we are in discussions with our customers about. So therefore, in terms of the production timing and sizes that we have from -- for the different sites, this is something that we're adjusting on a real-time basis to ensure that we can reduce any capacity loss or investment loss as much as possible.

However, one thing that we do believe that is very fortunate is that for the ESS demand in North America, there is a very solid trend that we see of growth. So therefore, we think that in North America, using the overall capacity advantages that we have with local production, we will continue to utilize some of the capacity that we have, including JV capacity, to cater to first, the ESS-related demand that we see and try to maximize the overall capacity efficiencies that we have for our operations.

[Operator]

[Foreign Language] The last question will be presented by Junsu Kwon from Kiwoom Securities.

[Junsu Kwon, analyst]

[Interpreted] There are 2 questions that I would like to ask you. First is that if you look at the European overall volume trend that you see versus the U.S., it does seem to be that it is a bit sluggish. So what trends do you see within the overall market in Europe? And how are you going to address that in terms of your strategy going forward?

The second question that I have is that there is some development of LFP batteries and also some prismatic LMR batteries that you have for GM. So what is the recent updates about that? And what would be your future strategy for production?

[Unknown Executive]

[Interpreted] So for the first question that you have, which is about the European market in terms of the trends and what our strategy is, maybe I can address that. This is [indiscernible] from Planning and Management. So if you look at the overall performance that we have seen in the first half, although the EV market in Europe was relatively stronger than expected, if you look at our overall shipments versus that -- to the U.S., it was a bit sluggish. And I do think that there are a couple of reasons behind that. One would be that in terms of the overall inventory management, we do think that our customers were a bit conservative on that.

And the second, that is that if you look at where the overall EV demand growth is coming in the European market, it seems to be on the mid- to low-end. And there are more Chinese batteries that are being used for EV vehicles in which the Chinese OEMs are trying to make inroads into in Europe. So we do think that, that somewhat had an impact.

So as this type of competition does continue, we do think that relatively speaking, that the overall slower shipments that we see in volume for Europe will continue for the time being. However, in the second half of the year, if you look at our key customers, there are some new model launches that are being planned. In addition to that, from our side also, we do have some new low- to mid-end chemistries that will go into commercial production one by one. So that is something that is being prepared.

In addition, within the year, we are planning to convert some of our EV lines to -- for ESS purposes and also produce off of those lines. So we think that, that will improve the overall utilization of our Poland capacity and the overall profitability that we see within this area.

So going forward, on a relative basis, we do, in the premium market in which we think that we have a stronger competitive edge, want to actively pursue more order opportunities based upon the new form factor for cylindrical batteries, which would be the 46-series. So using that competitiveness, we want to seek more opportunities and try to adjust the demand within the market.

[Unknown Executive]

[Interpreted] So the second question that you asked, which was the new developments that we have with GM and also our future product development strategy, maybe I can address this. From the advanced automotive battery planning and management, this is [indiscernible]. So right now, with our strategic customer, which is GM, we do have a co-development of prismatic-type batteries that is going according to plan without any issues. And as recently had been mentioned in the news, right now, we are developing or looking at the development of lower- to mid-end types such as LMR and LFP batteries.

So by this, we are trying to diversify not only our form factors, but also chemistries so that we can cater to the demand in each of the different segments and also the needs that customers have to diversify products. So we want to be able to be in a position to provide a wide variety of product solutions. So using the commercial production as the general assumption, there are various options that are currently being reviewed.

Due to the recent policy changes that we have seen within the market, there is some uncertainty with regards to EV demand going forward. So as a result of that, I do think that it would be a bit too early for us to discuss the production time lines or the size and overall specifications of products that we are currently looking at. However, for the existing NCM pouch products, we are going to continue to produce that from our Ohio site, the JV phase 1, which is currently in operation and is producing very stably. And for the new prismatic-type LMRs or LFP or other new products that we have, the overall plan would be to produce them from the Tennessee JV 2 -- JV phase 2, which would gradually expand its capacity going forward. So in light of the overall demand backdrop, we do want to have flexibility and catering to the situation so that we can maximize our capacity utilization as much as possible.

[Sara Hwang, executive]

[Interpreted] Yes. With this, we would like to wrap up our second quarter earnings conference call for 2025. Thank you once again for attending.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]