LG Energy Solution Ltd

KRX:373220

Earnings Call Transcript

[Sara Hwang, executive]

Good morning and evening. This is Sara Hwang, Head of IR from LG Energy Solution. Thank you for joining our Q4 2024 earnings conference call. First, I'd like to introduce who are present today. Lee Chang Sil, CFO, [ Samsung ] in charge of Finance and Accounting Group, [indiscernible] in charge of Finance; [indiscernible] in charge of Planning and Management; and [indiscernible] in charge of Advanced Automotive [indiscernible] Management; [indiscernible] in charge of Mobility and IT Budget Planning Management; [indiscernible], in charge of [indiscernible] Management; and [indiscernible] in charge of Corporate Strategy.

For your reference, the presentation for business performance and strategy will be conducted with simultaneous interpretation, after which we'll have [indiscernible] with consecutive interpretation. The presentation slide will be webcast live and also downloadable under corporate website.

In this call, I'm going to share our 2024 and Q4 results and business performance. And then CFO will share 2025 market outlook and our key initiatives and annual guidance followed by Q&A session.

Please note that the forward-looking statement, including the call are subject to change according to amendment in future business environment and corporate strategies.

First, let me reflect on the year 2024 in terms of financial performance and key highlights. Unlike previous years of consistent high growth with increased volatility in the EV market, the battery industry faced a challenging business environment throughout the last year.

First, the annual revenue posted about KRW 25.6 trillion, down by 24% Y-o-Y. The [ CF ] volume in North America grew by over 70% Y-o-Y, with the efforts of actively responding to the EV demand on the key customer, mainly from the JV. However, it was impacted more by the slowdown in the factory demand due to the negative EV market growth in Europe and the ASP decline in line with the metal prices, such as lithium and nickel.

The annual OP marked KRW 575.4 billion, down by 73% Y-o-Y. Even with improvement in the material cost ratio through high-quality, low-cost material and more than doubling the benefit from the IR tax credit, the OP margin marked 2.2% due to the adjusted utilization rate reflecting demand slowdown in Europe and increased fixed costs from the [ initial ] production and new sites.

Despite experiencing some ups and downs in the results, we have been actively working to enhance our fundamental competitiveness for the future, including strengthening our leadership in product and technology and improving our cost structure.

In the first half, we successfully began this production at [ ESS JD ] Phase 2 in Tennessee U.S. and as the JV [ Weichai ] in Indonesia. In the second half, we started module production and sell on to JV in Canada. Thanks to our global operational know-how accumulated for years, we achieved a record high annual average yield of 95% for automotive factory, showcasing our outstanding manufacturing capabilities once again.

On the product side, received a large-scale project through the development of new chemistries and form factor in the industry first [ LVP ] battery [ CTP ] technology, high-voltage [indiscernible] factories and maintained excellent performance while being cost competitive, and [ 46% ] increase in new capacity fivefold compared to the previous one, thereby reducing head costs. Additionally, we have laid the foundation for growth in the ESS business by securing large-scale projects for power grid in North America from global renewable energy companies like [ Hana Q Cell ] and [ Taragen ].

At the automotive factory in Korea, we have completed preparation for mass producing the [ 46 years ] and established [indiscernible] line for trial production of dry [indiscernible] to secure and strengthen our future readiness. And we are actively enhancing our sourcing capability via equity investment in [ Ostrand ] mine to secure [ II-compliant ] minerals and offtake agreement for large volumes of LP cathode at competitive prices.

Next, business performance in the fourth quarter. Despite an increase in sales in Europe and the ramp-up of mass production at the [ HCM ] and [indiscernible] JVs, the company shipment in the fourth quarter slightly [ deeper ] Q-o-Q. This decline was primarily due to an over 20% decline in [ EBIT ] sector volume in North America and the postponement of ESS project, in addition to weaker ASC trend in line with the metal prices, which is the quarterly revenue declined by 6% Q-o-Q to post about KRW 6.5 billion.

Net profitability, due to the revenue decline and new plants, fixed cost burden increased and the volume decline in the North American project led to deteriorated product mix. In addition, with time past, such as the disposal of [indiscernible] inventory of some raw materials and finished products incurred, operating loss, excluding the [ ITC ] credit, amounted to [ KRW 600.8 billion ]. The RTF credit for the fourth quarter was KRW 377.3 billion, 19% decrease from [ first ] quarter due to the reduced sale volume in North America. Including this, the operating loss was KRW 225.5 billion.

As for nonoperating items, the translation loss on FX-denominated borrowings due to the weakening of the Korean won against the dollar at the end of the quarter was mostly hedge through foreign exchange and currency swaps, including expense of interest, the nonoperating loss amounted to KRW 79 billion with net loss before tax recording KRW 304 billion, net loss marked KRW 411 billion.

Next, financial position. The assets at the end of the 2024 increased by about KRW 14.9 trillion compared to the previous year end to stand at KRW 60.3 billion due to acquisition of [indiscernible] assets due to investment in new facilities and others. The liability equity ratio recorded 95% with a debt to equity ratio of 50% and net debt-to-equity ratio of 37%.

Regarding cash flow for the year, positive cash flow incurred through EBITDA generation of about KRW 3.6 trillion as well as about KRW 4 trillion of cash inflow from corporate bond issuance with around KRW 13 trillion of CapEx executed mainly for the ongoing investment for the new sites in North America. The cash balance at the end of the year decreased by about KRW 1.2 billion compared to the previous year-end to KRW 3.9 trillion.

Next, [indiscernible] will present you on 2025 market outlook and our key initiatives.

[Chang Sil Lee, executive]

Good morning and evening. This is CFO, Lee Chang Sil. First of all, I wish health and happiness in the year 2025 to all our shareholders, investors and analysts continue to show unwavering interest and support for LG Energy Solution. Now let me talk about the outlook for the battery market this year.

In 2025, due to the delayed recovery of the global economy and geopolitical and policy uncertainties, there is more caution than ever when it comes to forecasting demand in the battery market. However, after a comprehensive analysis of external views and customer demand, we forecast the global battery to grow in the mid- to high 20% range in terms of capacity compared to 2024. However, as protection even continues to intensify centering around the U.S., we expect that companies like LG Energy Solution, which took the lead in entering the North American market will clearly benefit from first-mover event. Of course, if there are changes to the policies and regulations that have been driving the rapid growth of EVs, we expect the demand growth to decelerate in the short term.

Specifically, if the U.S. tax credit policy, which offers up to $7,500 of subsidy for EV purchase changes, it will directly affect the price that consumers experience. Given this, we are currently closely monitoring the potential downside risk in demand.

Meanwhile, in the ESS market, in addition to the move of major countries to secure stable energy resources, with the emerging interest of energy security, the need for securing renewable energy infrastructure are growing across various regions. Additionally, as [indiscernible] technology advances, data centers are rapidly expanding, which is causing a sharp increase in power demand. This will create additional growth opportunities for the ESS demand.

From a regulatory standpoint, starting from 2026, the U.S. will raise import tariffs on Chinese-made ESS batteries from 10.9% to 28.4%. This is expected to further increase the drive for securing batteries produced locally.

Looking at the trend in the long run, we have no doubt that both the EV and ESS market will grow steadily. LG Energy Solutions aims to meet this challenging year a turning point for the future plan -- for future growth.

Let me outline our key strategies to achieve this. In a situation where Chinese fluid, and there are concerns about downside risk, we believe it is also more important to proactively maximize operational efficiency. From -- for new products in sites starting operations this year, like the Stellantis and Honda JVs, we plan to respond seamlessly to customer needs. However, we'll make sure that we address the speed and scale of capacity [indiscernible] flexibly with conservative perspective on demand. Additionally, we will carefully assess the time lines of key test execution, prioritizing critical investments such as securing future technology and postpone less urgent investment to maintain financial stability.

Next for the Edelweiss in the [indiscernible] plant in Europe, we plan to start mass production of new chemistries like LLP and high-voltage nickel based on the orders signed up last year. We will also work to maximize the utilization rate of our existing capacity in China by securing new customers for standardized cylinder [indiscernible]. Also, to effectively respond to customer needs, we will ensure flexibility at each site to supply various form factors. We'll also work on converting some EV products in line for ESS, thereby enhancing operational capability between customers, products and mines at each production location, and we will focus on strengthening our fundamental competitiveness over the medium to long term.

First, we aim to deliver differentiated customer values by leveraging our competitive edge in product and quality, which are crucial for sustainable future growth. In terms of [indiscernible], they're ready to offer the full lineups from a high nickel chemistry suitable for high JVs to cost competitive options by LP and high-voltage nickel batteries. By broadening the range of form factors as well, we'll better meet the diverse needs of customers across different segments.

For ESS, we'll focus on creating value-added solutions based on high-class LFP sales and system integration capabilities. We'll further enhance battery safety and quality management systems by applying [indiscernible], BMS Diagnostic Solutions and AI algorithms.

On the cost side, while we plan to develop and expand the application of low-cost mature technologies, we'll continuously try to fundamentally reduce material cost by investing in the value chain of key raw materials like key metals. Also, we aim to strengthen structural competitiveness by improving productivity and reducing processing costs through process innovation and wider application of equipment automation. We will also prepare for future technologies and business diversification to enhance our long-term capability for profit generation. We plan to secure most products and capabilities for dry electrode technology at the [ Osang ] pilot line this year, which simplifies the overall processes compared to the record set currently used in [indiscernible] truck production, thus improving energy density and cost competitiveness.

Moreover, we'll establish [indiscernible] lines within the year for sulfide [indiscernible] batteries, which can significantly enhance performance and safety compared to the lithium batteries laying the groundwork for commercialization. In addition, based on [indiscernible] related data we have accumulated over the years, we plan to nurture and foster new businesses such as metro as a service and energy as a service. With this, we'll gradually expand our hardware-centric business structure to software-based one in the long run. Through these efforts, we'll establish a differentiated business structure across the entire battery ecosystem in the long run.

Last, but not the least, let me share our annual guidance for 2025. For revenue, we're aiming for a revenue growth of 5% to 10% Y-o-Y. Recent new lithium prices have remained low, around $9 to $10 per kilogram for a considerable period, given the lack of supply/demand momentum for a substantial increase in the metal prices, [indiscernible] the possibility of battery prices to increase during the year will be limited.

On the volume side, with our diversified competitive customer portfolio, we plan to start mass production and new sites in North America, like the Stellantis and Honda JVs, as well as expanding the launch of high value-added products like the 46 series.

Regarding CapEx, like I mentioned before, we intend to adjust the pace of new investment to reflect the highly volatile external environment and increase the utilization of existing production sites. By doing so, we will reduce annual CapEx by 20% to 30% Y-o-Y as utilizing resources more efficiently.

Given the propensity eligible for the tax credit in North America this year are expected to increase by about over 40% compared to the last year to reach about 45 to 50 gigawatt hour.

Investors, analysts and shareholders, the ongoing geopolitical and policy uncertainties have made the battery market less predictable, and the entire value chain is facing unprecedented challenges. However, these challenges also offer opportunity growth and advancement and we believe how quickly we [ sent ] such trends and respond strategically and preemptively to secure differentiated competitiveness will matter.

To sum up, from a short-term perspective, LG Energy Solution is going to focus on improving investment efficiency and cost structure and reducing costs as well as strengthening our product portfolio to prepare for a recovery in customer demand. In the long run, we will systematically prepare our business to secure a leading push in the upcoming upturn, so therefore, I'd like to appreciate your continued support and valuable advice. Thank you.

[Sara Hwang, executive]

This is the end of the presentation. We'll be in the floor for Q&A session. [Operator Instructions]

[Operator]

The first question will be provided by [ Roh Toh ] from HSBC Securities.

[Unknown Analyst]

There are 2 questions that I would like to ask you. One is about your guidance. And the second would be with regards to the U.S. policies going forward.

The first question that I would like to ask you is about your overall outlook for your business for the first quarter and also for the full year of 2025. If you could provide that, that would be appreciated. And in addition to that, when do you actually believe the overall demand within the market will recover?

The second question that I would like to ask you is about the U.S. situation surrounding Trump 2.0. We do believe that there is a lot of volatility with regards to the overall policies that the new administration may provide. So what are your expectations going forward? And how are you planning to deal with such situation?

[Chang Sil Lee, executive]

So this is the CFO, Lee Chang Sil, and thank you for your questions. Maybe I can address the 2 questions, and I do know that these are the questions that the market is most interested in.

First, if we look at the current situation, as President Trump has taken office, I do think that if you look at the variety of policy situation, it does seem to be that right now, there can be changes, and I do think that this is an issue that the market is very sensitive towards.

If you look at the major OEMs, in general, I do believe that they are taking a conservative stance in terms of forecasting the demand for the future. And the ESS and IT industries, there are some implications due to the low season of these industries and themselves in terms of demand. If we look at the first quarter and the outlook for that on a Q-o-Q basis, we do think that all this will lead to a situation in which it may be a bit challenging to actually increase our overall revenue growth.

In terms of profitability, we are making efforts to cut on the material cost and also improve our overall product competitiveness. So as these initiatives are taking place, we are going to try to focus strictly in terms of rationalizing and improving the overall operational efficiency. And if we look at the overall -- and going forward, of course, there will also be the elimination of the one-off factors that we have seen in the previous quarter. So the base effect, and added to that in terms of the operating income also, the strong U.S. dollar will also be working in our advance. So we think that this is something that we can leverage up. So as a result of that, we are going to focus on putting an effort to try to see some meaningful improvements in terms of our profits.

If we talk about the full year outlook for us, because there are a wide amount of variables within the market, I do believe it's a bit difficult to be very confident about how we see the future. But if you look at the battery market, focusing on the key countries, in which there is the most demand, there seem to be changes taking place in terms of the geopolitical and also economic situations there. And I do think it will take some time for these situations to play out. So we do think that there will be increased volatility as a result.

In particular, if we look at the North American market, it is a situation in which the overall policy uncertainties are still high. And as a result of that, it is difficult to actually make very precise as to the demand going forward. But based upon our own internal planning and also discussions that we have had with various OEMs, we do think that the first quarter will be the bottom and that there will be a gradual recovery that we will see in terms of volume going forward.

Based upon -- and the reasons why we believe so is because there are various new EV launch plans that our OEM customers have, and towards the second half of the year, we also have the JVs with Stellantis and Honda, which will be starting the commercial operations in the North American area. And this is -- there are increasing needs to deal with energy security and also tariff situations that are playing out, there is an increasing demand for local ESS production. And as a result, we do think that because we have been taking a first-mover advantage within providing such localization strategies that this will enable us to deal with such demand and also create various good business opportunities as a result of that.

As a result, as I have mentioned before, we are on the [ FX ] side going to try to cut back as much as possible and also try to maximize the existing capacity operations that we have. So according to how changes play out, we will try to be agile in taking and responding to that. And as a result, we do think that after 2026 or from 2026 and thereafter, that we will be able to see a recovery taking pay quickly within the overall demand. So for the time being, we want to focus on our fundamental product competitiveness and cost competitiveness, strengthening these factors and also trying to do our most to rebalance our overall portfolio.

Yes. Maybe I can go on to your second question. If we look at the overall situation, as Trump has taken office and has officially been inaugurated, I do believe that there are various situations, which may lead to key changes within the policies with regards to the IRA and tariffs. And as a result of that, there could be some implications on industries and businesses. And as a result, we are trying to design various scenarios and try to look in and have an in-depth analysis so as to think about how we are going to address the future as it does present itself.

So if we talk about the key areas that may be directly related to our business, as Trump has mentioned during his inaugural address and based upon the various discussions that have been made about executive orders and also policy directions and the thoughts for the future.

With regards to the IRA policy, we do believe that there is a relatively higher possibility that for the -- that are may -- that it may be used as a method to try to secure financing for the future for various tax cuts that the administration wants to engage upon. So as a result of that, in particular, if we look at the EV-related producing subsidies or [ 30D ] that has been provided and is related to consumption, we do think that relatively, there is a higher possibility that it may be abolished or that it could be cut back.

In addition to that, on the overall AMPC, or the battery production subsidies that are being provided, which would be 45X, which is directly related to battery production and also employment, we do think that on a relative basis, it does not look like there will be -- there's a high possibility of changes taking place there.

In terms of the tariff situation, in order to be able to generate immediate tax revenues and also due to -- if you look at the pros and cons of that such tariffs may have on inflation, due to the impact that it could have in raising import prices, we do think that there is a higher possibility that rather than common tariffs being implemented, that the administration would focus on being more targeted for specific countries and leveraging higher tariffs on such countries.

So as a result, as the changes took place on U.S. tariffs and also policies, in the short term, we do believe that, that may slow down the overall pace of electrification within the market. However, we do not believe that for the direction -- future direction for the battery industry that there will be any big changes on that front. So we do believe that it is still a situation in which the winners and losers will be determined by who is more preemptively prepared for future such situations and the future industries.

As a result, for our company, on the short-term side, we will be continuously very closely monitoring the market and also our customer situation to ensure that we can immediately respond and also very proactively respond to changes as they take place and also try to maximize our capacity and our overall utilization. Over the mid- to long-term horizon, I think that our stance would be that we do want to be prepared for future demand growth and also be preemptively prepared for any changes that may take place within the market and our products. So that in the case that the market opportunities do arise that we do not miss those opportunities. So on that front, I do think that we're going to try to take a more systematic and more in-depth approach to try to be prepared.

[Operator]

The next question will be presented by Hyun-Soo Kim from Hana Securities.

[Hyun-So Kim, analyst]

So questions that I would like to ask you would be with regards to your North American business. The first question that I would like to ask is about one of your core strategic clients, which would be GM. If you look at GM's 2024 performance in terms of their EV sales, it does seem to be that they have underperformed versus their target. So I do believe that, that will mean that in terms of battery inventory, that they would have relative higher levels. So how do you think that the inventory adjustments will take place? And when do you believe your overall deliveries towards GM will start to recover?

On the second side, if you look at the policies and the market in general, I do believe that overall uncertainties are increasing. So in line with that, I do think that there may be adjustments that you will be making to your capacity expansion plans in North America and also your operations. So what are your thoughts on that side?

[Unknown Executive]

Yes. This is [ Amin Gyu ] from the Advanced Automotive Battery Planning and Management side. So maybe I can address your first question. First, as we have mentioned during the presentation, and as we have talked about the fourth quarter, there has been [indiscernible] overall slowdown with regards to the overall performance, however, if we -- in terms of volume to GM. If you look at the policies uncertainties on the U.S. side, we do think that due to this factor that the customer side for the time being that they will be maintaining their inventory as a tight level. And as a result of that, we do think that the overall inventory buildup in first quarter will be limited as a result.

However, that has been said, for the customers' overall EV sales, there is a price attack business that the products represent. And also if you look at the overall monthly trends, it is showing an upward trajectory. So we do think that as we pass through the end of last year towards the first quarter of this year and as the overall inventory is more adjusted that we will see a better situation.

So if we look at our customers' inventory levels, of course, it's not something that we would be able to have detailed information about. However, based upon our customers' overall yearly production target, which is another fact that we will have to also confirm with them, and based upon the intelligence that we do have, there does seem to be some meaningful improvements that are taking place.

And in addition to that, if you see some of the market responses for the EVs that they have put out, added to the fact that there are new models that are going to be launched this year, we do think that from the second quarter, there will be a gradual recovery that we will have -- that we will see an overall volume as the overall inventory adjustments are completed. And towards the second half of the year, we will be able to see more of a full-fledged recovery in terms of demand.

[Chang Sil Lee, executive]

So this is the CFO, and maybe I can address the second question because I do know that there is a lot of interest around our North American capacity. And if you look at our cost base, excuse me, of course, we do have our overall variable cost and added to that would be our fixed cost, which is a large portion of the depreciation that we have on our investments. So maybe I can focus on our investment plans for the future to talk about that factor.

Of course, with regards to the volatility within the market, we do want to preemptively try to deal with such a situation in a more agile manner. So if you look at one of our key markets, which would be the North American market, we are currently focusing our efforts and our various capacity reallocation plans.

So in terms of that to talk about it in more detail. With regards to our ESS capacity, originally, our plan was to build out new capacity in Arizona. However, now we have adjusted that plan so that we will be trying to use some of the idle capacity that we have in our existing sites. In addition to that, in order to quickly be able to cater to local ESS North American demand, which we do believe has very high growth potential for [indiscernible] on grid related demand for the future.

For LFP battery production on site, we have tried to accelerate the time line from the existing 2026 to the first half of 2025. In addition to that, in North America right now, as you are probably aware, the infrastructure-related CapEx is rising -- or investment cost is rising very rapidly in terms of the overall burden. So rather than building new capacity on new sites, we do want to try to maximize and fully utilize the existing sites that we have as much as possible. So I am trying to save on our overall investment and CapEx. We are focusing on the overall feasibility of the investments in themselves and making appropriate decisions as we go ahead. So as a result of that, of the wide varieties that we have, one of the options would be to acquire GM, the JV phase 3 with GM to deal with local demand.

In addition, for other sites that we have in terms of the investment rationalization, we are looking into, on a comprehensive basis, the overall market and our customer situation to ensure that we do not overinvest. And that, we also see very stable and very high levels of utilization so that we can focus on maximizing the soundness of the assets that we have as much as possible.

In addition to that, in the second half of the year, we do have the target of starting commercial production for our Stellantis and Honda JV. So based upon the already acquired operational excellencies that we have, we will try to ensure that, that preparation goes according to schedule without any issues. However, in terms of the ramp-up speed in itself, we will not rush ourselves. We rather are going to monitor demand very closely and try to adjust our overall operations accordingly.

So as mentioned, in terms of our overall stance, rather than focusing on new capacity additions, the priority for now will be on maximizing the utilization of the existing capacities that we have as much as possible. So that means that we will continue to look at each of our different sites and our lines and the entities that we have in more detail to try to ensure that we come up with the most optimized capacity utilization and operational plans, and we will continue to do -- focus our efforts on this point.

[Operator]

The following question will be presented by Minwoo Ju from NH Investment & Securities.

[Minwoo Ju, analyst]

I also have 2 questions that I would like to ask you. First is that in terms of the overall CapEx trending down, when do you believe that, that will actually start? And in terms of the timing, and for 2025, what would be your funding plans or financing plans for the year?

The second question that I would like to ask you is that for North America and Europe's overall utilization, when do you think we will be able to see a recovery in that area? And when do you think your overall performance will start to recover?

[Unknown Executive]

As for the first question, maybe I can address this question. I am [ Kansung Gwun ] from Finance and Accounting. So I do believe that your question was first on our CapEx and our funding plans for this year.

To talk about CapEx first, in relation to our customers' overall situation, and to ensure that we are preemptively prepared in terms of our CapEx, as a result, if you look at the past 2 years, we have seen CapEx increase. However, for this year, we do think that we will be able to spend around KRW 3 trillion less in terms of our overall CapEx budget. So we will have a meaningful reduction as a result.

So if you look at the reasons for that, in terms of our capacity additions, in terms of the buildings that are required, which -- in which a lot of CapEx is actually used, we have completed a lot and made significant progress on that. And in addition to that, we do think that we will be able to have some also cost savings due to having stronger cost competitiveness on the various equipment or facilities that are necessary. In addition, as the CFO has mentioned before, we are focusing on utilizing any idle lines that we have and maximizing that as much as possible to minimize the new CapEx that would be required. So as a result of these efforts, we do think that CapEx from next year will start to gradually decrease.

In terms of our funding plans, of course, if you look at the resources that are available from operations, we do have our internal cash flow, which would be, first, in terms of usage. However, if there is any shortfall, we will be engaging on external funding activities or financing activities. So if you look at the -- to talk about this in a bit more detail. At the HQ level in last year, of course, there were both corporate debentures that were issued in the Korean won and non-Korean won markets done very successfully. So this year, again, we are looking into plans to issue corporate debentures at a similar level that we had as of last year.

In addition to that, in terms of the North American joint ventures, in which there is a lot of CapEx requirements that we see in terms of the needs, those entities, we'll be financing their CapEx, utilizing the various policy financing that is available at a low cost and long-term nature. So while reviewing a wide variety of funding options that are available to ensure that we secure the more competitive terms we will be continuously managing our cash flow in a very stable manner.

[Unknown Executive]

Yes. Maybe I can address your second question. This is [ Chong Geo ] for Planning and Management. First, to talk about our current situation in terms of utilization for the full company in the fourth quarter.

Because of various inventory adjustments set at the end of the year by our key OEMs and also due to the very conservative production planning that has taken place due to policy uncertainties, if we look at the Q-o-Q situation in terms of our full -- for the full company utilization, there has been a slight decline. In particular, as GM, which is one of our key customers, has been adjusting inventory at the end of the year. If you look at the overall regional utilization in North America specifically, there has been some adjustments there. And with regards to our program site, if we look at it on a Q-o-Q basis, it has been flat.

In a situation and demand uncertainty, going forward is a bit unclear. We do think that customers are trying to take a more conservative stance. Added to that, there is [indiscernible]. Seasonally, it is a low season. So in the first quarter, we do think that the overall utilization trends will be similar to the current situation. However, from the second quarter, we do think that there will be a gradual recovery that we will be able to see.

So to talk about how we are going to try to improve the situation. In a situation in which it is very difficult to have a forecast on demand going forward, and also because there may be changes to the U.S. IRA and other situations, we are going to try to use the existing idle lines as much as possible and try to convert some of the capacity that we have for other applications in which there is higher demand. So in addition to that, we are going to try to utilize the existing lines as much as possible and producing products that represent new chemistries. So that is something that is going to be executed so that we can gradually continuously improve our overall full company utilization.

[Operator]

The next question will be presented by Sonny Lee from Macquarie Securities.

[Sunwoo Lee, analyst]

There are 2 questions that I would like to ask you. First is that in December, you did announce that you will be pursuing prismatic-type batteries with GM. So what is the progress on that? And what are your plans going forward?

And in addition to that, if you could elaborate a bit more, as a second question, about what form factors you would be addressing for various customers and your plans going forward? That would also be appreciated.

[Unknown Executive]

This is [ Chang Jonghan ] from Business Strategy. And maybe I can first, thank you about your question about our overall product strategy and talk about our cooperation that we have with GM. So of course, with GM right now, in line with their strategy to try to diversify their EV battery form factors, we are working with them together to try to develop a prismatic-type battery. So we do believe that this will contribute to further standing the partnership that we have between the 2 companies.

As of the right time, we are talking about the design in terms of the technology, the overall manufacturing process and also the chemistry side design with GM to come up with the best solution that we would be able to have. So as of the current time, it would be difficult to talk about any details in terms of timing of our mass production or in terms of the overall capacity that we are thinking about for the future. However, that has been said, from our side, we do have the overall experience of developing and producing prismatic-type batteries.

And also, we do think that we would be able to leverage the overall material and process design know-how that we have accumulated and the expertise that we have in terms of technology on the touch side, in particular, the overall [ pros ] and the benefits that we see in terms of our stacking technology tied to this project so that we can secure a prismatic battery that would have sufficient capabilities and also competitiveness.

On the GM side also, they do have the design know-how for EVs that use prismatic batteries. So as a result, we do think that through this strategic alliance that we have between the 2 companies, we can maximize the customer value to come up with a solution in an early manner so that we can also develop new business opportunities in the prismatic battery market.

So maybe to continue to address the second question that you had, which would be by the various form factors, how would -- what would be our strategy in terms of the products for each of the customers. So based upon the various technology that we have for various chemistries, we are going to try to expand the form factor lineups that we have to satisfy various customer needs.

So first, if we look at direction in terms of the overall premium segment, we will continue to focus on the existing high-nickel [ pouch ] batteries that we have and also on the cylindrical 46 series, which does have safety and also cost competitiveness so that we can cater to and also expand overall customer base from EV start-ups to the legacy OEMs.

In addition, in the standard and affordable segment, according to the customer situation, we will be focusing on the overall LFP chemistries and also the voltage mid-nickel chemistries that are available to be flexible to provide pouch and also prismatic-type batteries in this area so that we can provide the solution that provides the most optimal and best form factor. In addition to that, we will continue to focus our next-generation materials development in terms of silicon anodes and also for dry-type electrodes so that we can continue to develop strengths that are differentiated within the market.

So based upon the technology that we have in various chemistries and also form factors, this is an area that we will continue to strengthen. And added to that, we will try to become more diverse, so that we can cater to various customer needs and also maintain our leadership within the market.

[Operator]

Yes. Thank you very much. With this, we would like to wrap up on LG Energy Solutions 2024 Earnings Conference Call. Thank you for your participation.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]