LG Energy Solution’s preliminary third-quarter 2026 operating profit reached KRW 756 billion, yet KRW 416.9 billion of that result came from US manufacturing tax credits. Excluding the credits, the company’s operating margin was 3.7%. The distinction captures the battery industry’s emerging recovery: volumes and operating results are improving in selected businesses, while the economics of producing cells at scale remain exposed to incentives, utilization and product mix.
The evidence for a new expansion cycle is becoming stronger. Grid-scale energy storage is growing quickly, electric-vehicle sales have regained momentum in Europe, and battery manufacturers are finding new uses for North American capacity originally planned around automotive customers. The recovery is uneven. US EV demand is still weak, global manufacturing capacity substantially exceeds current deployments, and a larger market for batteries does not automatically imply better margins for every cell or materials producer.
For the industry, the next two years may reward a different set of capabilities from the previous expansion: adapting factories to different chemistries, serving power-infrastructure customers, operating production lines at better yields and capturing manufacturing savings without committing to another speculative round of capacity additions.
Electric-vehicle demand has separated into three regional cycles
Global EV adoption did not stop during the recent industry downturn. The International Energy Agency estimates that more than 20 million electric cars were sold in 2025, an increase of roughly 20%, and forecasts approximately 23 million sales for 2026. Electric vehicles represented around one-quarter of worldwide new-car sales in 2025. That global trajectory conceals very different conditions for the companies supplying batteries.
Europe is the clearest example of demand returning. According to the European Automobile Manufacturers’ Association, battery-electric vehicles accounted for 21.7% of EU new-car registrations in January-August 2026, compared with 15.8% in the equivalent period of 2025. France and Germany were among the countries recording particularly strong increases. The latest figures describe battery-electric cars alone; the IEA’s broader electric-car series also includes plug-in hybrids, so the two market shares should not be compared directly.
China remains the largest EV market, with an increasingly mature domestic industry and exceptionally intense price competition. Its producers continue to expand overseas, even as domestic growth slows. In the United States, the expiration of federal consumer EV tax credits and reduced regulatory pressure have weakened the demand assumptions behind many earlier battery-plant investments. The IEA’s 2026 outlook records a sharp decline in US electric-car sales at the end of 2025, while its first-quarter 2026 assessment shows continued weakness in the United States and China alongside gains elsewhere.
The geographical distinction changes supplier economics. An EV battery plant tied closely to one US automaker can remain underutilized while another producer serving European models or lower-cost vehicles increases shipments. For Korean manufacturers with large investments in North American joint ventures, a global EV sales forecast is therefore a poor proxy for next year’s factory earnings.
Energy storage is giving battery factories a second demand engine
Electricity storage has become the fastest-growing major application for battery capacity. The IEA reports that 108 GW of battery storage was deployed worldwide in 2025, up 40% from 2024. Lithium iron phosphate (LFP) technology accounted for about 90% of new storage installations, reflecting its combination of cost, safety characteristics and cycle life.
US installation data confirm that this expansion is already reaching the power grid. The US Energy Information Administration reports 43.6 GW of operational utility-scale battery storage at the end of 2025 and nearly 52 GW by the end of June 2026, after 8.3 GW of additions in six months. Its August 2026 analysis identified a further 14 GW planned for the second half of the year. Planned projects can be delayed, but the operating additions are already substantial.
Battery demand from the electricity system has multiple commercial foundations. Utilities use storage for peak shifting, frequency regulation, renewable-energy integration and grid reliability. Data-center growth raises the value of power availability and creates opportunities for both grid-connected batteries and on-site backup applications. Those are related markets with different duty cycles, contracting arrangements and technical specifications. A data center does not necessarily purchase a dedicated large battery for every increment of computing capacity.
In our analysis of NAVER’s planned AI factory, the central issue was converting capital-intensive infrastructure into paying customer demand. Battery storage faces a related test: the commercial value lies in a commissioned, dependable system that earns revenue from the grid or customer, not simply in cells delivered to a construction site.
There is also a measurement problem. Storage projects are commonly reported in GW of power and GWh of energy. A four-hour, 1 GW project represents 4 GWh of storage, but projects have different durations. Global GW installations cannot be added directly to GWh of EV battery deployment. Conflating the two exaggerates how much storage demand can absorb surplus cell production.
The capacity arithmetic still limits an industry-wide rebound
The IEA estimates that global lithium-ion battery nameplate manufacturing capacity exceeded 4 TWh at the end of 2025, up roughly 30% from a year earlier. It estimates 1.2 TWh of EV battery deployment in 2025, also growing strongly. EVs accounted for more than 70% of global battery deployment, with stationary storage and other applications supplying the remainder.
These figures establish the scale of excess installed manufacturing potential, but they do not constitute a global utilization ratio. Nameplate capacity is an annual production capability, whereas deployment measures batteries installed in end uses; production, shipment, inventory, yield and geographic boundaries do not align perfectly. The 1.2 TWh figure also excludes stationary storage. Nevertheless, capacity built for a much larger anticipated demand curve remains a material obstacle to a broad pricing recovery.
The relevant operating mechanism is fixed-cost absorption. Battery factories incur depreciation, labor, maintenance and energy-related expenses even when production lines are running below their intended output. Lower utilization spreads those costs across fewer saleable kilowatt-hours. New plants also require time to stabilize yield. As a result, a rise in orders can lift operating profit disproportionately once an existing line moves through an economically efficient range of throughput.
Consider a simplified hypothetical plant with 40 GWh of annual nameplate capacity. At 50% utilization, it produces 20 GWh; at 75%, it produces 30 GWh. Output rises 50% without constructing another 40 GWh facility. That is an illustration of operating leverage, not a forecast or an estimate of an actual manufacturer’s utilization. The amount of profit created depends on selling price, yield, conversion costs, depreciation, working capital and customer contracts.
For producers carrying idle automotive capacity, the first high-return investment may be a successful line conversion or process upgrade. A new greenfield factory should face a higher hurdle when existing assets can be repurposed. The case for customer-backed investment also appears in our analysis of Samsung Electro-Mechanics’ capacity agreements, although battery contracts and production timelines differ. Yet conversion is neither instant nor free: electrode formulation, cell format, equipment settings, quality testing and customer qualification can all require material changes.
LFP is rewriting the recovery’s supply-chain economics
Technology mix is as important as market size. According to the IEA, LFP exceeded 55% of global EV battery deployment in 2025, while accounting for roughly 90% of stationary-storage battery installations. LFP battery packs were more than 40% cheaper per kWh on average than nickel-rich NMC alternatives in 2025, although the IEA warns that application mix partly explains the observed price difference.
That shift has unequal consequences. Manufacturers supplying affordable EVs and stationary storage can gain volume through LFP. Suppliers focused on high-nickel cathodes face a more difficult mix adjustment. Nickel-rich cells retain advantages in applications where energy density and weight are crucial, including some premium vehicles, but higher energy density is less valuable when the battery sits in a stationary enclosure and occupies relatively inexpensive land.
Nor does changing the cell chemistry create a domestic materials supply chain automatically. The IEA identifies Chinese dominance in LFP cathode materials, their precursors and graphite processing. A North American assembly line can therefore be physically local while important upstream materials remain internationally concentrated. Establishing alternative sources adds qualification time, capital cost and supply risk.
Cell makers must decide how to split investments among cathode chemistry, cell format and manufacturing location. In August 2026, LG Energy Solution announced the start of production at its Lansing facility and said it planned more than 50 GWh of North American LFP cell-making capacity by the end of the year across standalone plants and joint ventures. This is a company target for manufacturing capability, not a statement that all of it was already fully utilized or committed to paying customers.
Power-grid security changes who can compete in US storage
A separate source of differentiation is emerging from US infrastructure policy. Executive Order 14421, issued on August 26, 2026, treats specified bulk-power system equipment as a national-security issue. Its definition explicitly includes battery energy storage systems, grid-connected inverters and relevant control systems. The concern extends beyond where a battery cell is made to remote access, software, firmware and lifecycle maintenance.
The order is often easier to summarize than to apply. It does not impose an automatic blanket prohibition on every Chinese-made battery or every foreign-supplied storage product. The Department of Energy states that restrictions require the relevant determinations about a covered foreign entity and an undue or unacceptable security risk. Implementing rules and transaction-specific findings will determine practical effects.
Even before final implementation, these requirements can alter procurement. Developers and utilities may put greater weight on traceable components, software control, cybersecurity validation, supplier continuity and domestic service capability. Storage-system integrators can gain economic relevance by making multiple components work together while satisfying compliance and performance obligations. The commercial premium, if one develops, must still be weighed against the higher cost of some localized supply chains.
LG Energy Solution’s September 2026 announcement that its system qualified under NVIDIA’s DSX Ready BESS program illustrates another route to differentiation in AI-related power infrastructure. Such a qualification provides evidence of product alignment with specified reference-design requirements; it is not proof of future purchase volumes or regulatory approval.
Where the economic gains can accrue
The battery industry’s next phase is better understood as a set of distinct earnings mechanisms than as one synchronized commodity cycle. The table below separates changes in end-market demand from the actions required to turn demand into economic returns.
| Value-chain layer | Potential recovery driver | Mechanism for earnings | Principal constraint |
|---|---|---|---|
| Battery cells | ESS orders; European EV demand | Higher utilization and product mix | Excess capacity, local costs and incentives |
| LFP cathodes and active materials | Storage and affordable EVs | Scale, yield and regional sourcing | Chinese cost advantage and weak pricing |
| High-nickel materials | Premium EV and specialized applications | Technical differentiation and volumes | Slower demand and chemistry substitution |
| Electrode and process equipment | Line conversions and productivity upgrades | Orders tied to throughput and operating cost | Deferred capital spending and commissioning |
| Storage system integration | Utility-scale and data-center power projects | Design, controls, commissioning and service | Warranty exposure and project execution |
For cell manufacturers, the near-term opportunity is operational: produce more saleable output from equipment already on the balance sheet. For materials producers, recovery requires both physical demand and a sustainable spread between selling prices and input costs. A factory can sell more cathode material and still struggle if competitors expand faster or if raw-material volatility compresses margins.
Equipment suppliers face a different sequence. New lines are ordered when manufacturers judge that existing factories cannot meet future product specifications or volumes economically. Electrode mixing, coating, calendaring and precision handling are especially relevant to chemistry changes and productivity. Suppliers able to demonstrate better yield, energy use and throughput can be valuable even when customers postpone new greenfield factories. Their order books, however, remain vulnerable to delayed project schedules and customer financing constraints.
System integration offers revenue extending beyond the cell. A utility-scale storage project requires inverters, battery-management systems, thermal controls, grid compliance, commissioning, software and service commitments. Engineering competence and a credible operating record may be decisive in procurement. Those activities also create warranty, performance and execution liabilities that a cell-only business does not carry in the same form.
China remains the most formidable benchmark. CATL reported RMB 423.7 billion of 2025 revenue and 661 GWh of lithium-ion battery sales. Its scale, manufacturing know-how and integration into upstream material supply help explain why volume growth has not translated into equally strong margins across global competitors. Regional restrictions can create openings for other manufacturers without removing the underlying requirement to match Chinese producers on cost and quality.
LG Energy Solution provides a test of underlying profitability
Company disclosures show that adaptation is beginning to affect operating results. In July, LG Energy Solution reported that its first-half 2026 ESS revenue had grown 4.6 times year-on-year and accounted for a share of group revenue in the high-20% range. Management also pointed to improved European EV battery utilization, higher cylindrical-battery sales and more output from North American storage lines.
Its October 8 preliminary third-quarter disclosure then showed revenue of KRW 9.6434 trillion and operating profit of KRW 756.0 billion, increases of 59.0% and 25.7%, respectively, from a year earlier on the company’s restated comparison basis. But the KRW 416.9 billion North American production tax-credit effect represented approximately 55% of reported operating profit. The company disclosed KRW 339.1 billion of operating profit and a 3.7% margin when the credit is excluded.
That normalization is essential for assessing whether the cycle has turned. Manufacturing credits are economically important cash-support mechanisms, subject to eligibility and policy conditions. They can help pay for a geographically diversified battery supply chain. Their inclusion in reported results should not obscure whether core manufacturing profitability can sustain itself as competition changes and incentives become more demanding.
The third-quarter figures are preliminary and do not yet establish which products or geographies produced the improvement. A sustained recovery would show up in better factory throughput, narrowing fixed-cost absorption penalties, stable customer deliveries, improved operating margins excluding production credits and cash generation after maintenance and conversion spending.
Dry electrodes could open a second equipment cycle
Process innovation may eventually provide another source of investment demand. Traditional wet electrode manufacturing mixes active materials with solvents, coats the slurry and dries the electrode. Dry-electrode methods seek to reduce or remove parts of the solvent and drying process, potentially lowering energy requirements, factory footprint and selected manufacturing costs.
Tesla’s January 2026 shareholder update reported that it was producing 4680 cells in Austin using dry electrodes for both anode and cathode. This is meaningful evidence of industrial progress, though it does not establish that other manufacturers can reproduce the process with similar yields, costs or material formulations. LG Energy Solution said in July 2026 that it was preparing a pilot line for all-solid-state batteries using dry-electrode processes, illustrating a separate development path.
The commercial opportunity for equipment manufacturers lies in process control: reliable powder handling, mixing, film formation, adhesion, calendaring, defect inspection and yield. Those requirements can create demand for specialist machines and retrofits. Adoption will depend on delivered cell cost and manufacturing performance, not on the novelty of the process. The eventual mix of dry and wet methods will vary across battery chemistries and product designs; all-solid-state batteries do not imply a universal near-term switch to one dry process.
Why storage growth cannot resolve the whole overhang
The strongest counterargument to a broad near-term battery rebound comes from the same source that documents the rapid expansion of storage. The IEA expects EV deployment to remain the dominant source of global battery demand over the longer term. Stationary storage can support factories through a difficult automotive cycle, but it is unlikely to absorb the entire industry-wide supply overhang by itself.
The segment also favors LFP, where established Chinese companies are unusually competitive. CATL’s energy-storage business and its growing emphasis on system-level testing show that incumbent leaders are pursuing the same new demand. A rapidly growing market can therefore still generate poor returns for a late entrant carrying higher costs, weaker local materials access or an expensive conversion program.
Policy adds two-sided uncertainty. Domestic production requirements and power-grid security screening may improve market access for selected suppliers, while higher local manufacturing costs, changes to tax-credit eligibility and trade frictions can reduce the savings. Higher project financing costs can delay utility-scale installations even when the long-run need for grid flexibility is clear.
A storage order is also not equivalent to recognized revenue or free cash flow. It may be conditional, staged over several years or dependent on the customer’s project reaching financing and commissioning milestones. New demand must survive those gates before it supports higher factory utilization.
What would turn selective recovery into a full upcycle?
A defensible industry upcycle requires evidence in the operating accounts, not merely expanding end-market forecasts. Three observable changes would materially strengthen the case.
- Utilization and cash conversion: Cell manufacturers sustain higher shipment volumes and positive operating margins excluding production credits for more than one quarter, while inventories and conversion spending remain controlled.
- Geographic breadth: European EV demand continues translating into battery orders, and North American customers restore measurable EV purchase commitments alongside growing ESS deliveries.
- Disciplined reinvestment: Equipment spending shifts toward paid-for productivity improvements and demonstrably needed capacity, while materials producers show margin recovery without relying on temporary input-price effects.
The most immediate question is whether the earnings improvement seen in select producers during 2026 can survive changes in subsidies, battery chemistry and customer demand. Full third-quarter results, 2027 customer guidance and subsequent factory-utilization disclosures will help distinguish a lasting manufacturing recovery from a profitable interval inside a still-oversupplied industry.
Sources & Methodology
Data as of October 19, 2026.
This analysis combines official company disclosures with IEA battery-market estimates, ACEA registration data, US EIA capacity statistics and the text of US Executive Order 14421. EV deployment is reported in battery energy (TWh), while stationary-storage deployment and installed power capacity are often reported in GW; these measures are deliberately kept separate. The 40 GWh utilization example and the share of LG Energy Solution operating profit attributable to credits are analytical calculations, not external forecasts. Capacity announcements, project plans, corporate targets and preliminary earnings are identified as such; cross-company utilization and segment profitability remain incompletely disclosed.
Primary sources
- LG Energy Solution, “2026 Third-Quarter Preliminary Results,” October 8, 2026
- LG Energy Solution, “2026 Second-Quarter Financial Results,” July 30, 2026
- LG Energy Solution, “Start of Production at Lansing Battery Plant,” August 19, 2026
- LG Energy Solution, “BESS Qualifies as NVIDIA DSX Ready BESS,” September 22, 2026
- US Energy Information Administration, “Battery Storage Capacity Averaged 70% Growth Over the Last Three Years,” August 7, 2026
- ACEA, “New Car Registrations, August 2026 Year-to-Date,” September 24, 2026
- White House, “Executive Order 14421—Declaring a National Emergency To Secure the United States Bulk-Power System,” August 26, 2026
- US Department of Energy, “Bulk-Power System Executive Order: Implementation Overview,” accessed October 19, 2026
- Tesla, “Q4 and FY 2025 Update,” January 28, 2026
- CATL, “CATL Releases 2025 Annual Report,” March 10, 2026
- CATL, “Energy Storage Validation Research Institute,” June 1, 2026
Other sources
- International Energy Agency, “Global EV Outlook 2026: Executive Summary,” accessed October 19, 2026
- International Energy Agency, “Global EV Outlook 2026: Electric Vehicle Batteries,” accessed October 19, 2026
- International Energy Agency, “Global Energy Review 2026: Battery Storage,” accessed October 19, 2026
Background reading
- Brokerage research from IBK Investment & Securities (October 2026) and Hana Securities (September 2026), used for context only; no figures, text or charts reproduced.