The South Korean company reported Friday that consolidated sales in the April-June quarter jumped 15% on the year to 19.46 trillion Korean won (US$14.9 billion). However, group operating profit dipped 12% to 792 billion Korean won.
LG Electronics’ appliances and televisions, which had consistently performed well during the pandemic, suffered setbacks as stay-at-home demand eased. But the automotive unit emerged as a bright spot.
The segment earned 50 billion Korean won in operating profit for the second quarter, rebounding from a loss of 343.8 billion Korean won a year earlier. Automotive division sales climbed 19% to 2.03 trillion Korean won, nearly quadruple the last profitable quarter ended December 2015.
Driving these numbers are infotainment systems installed in electric vehicles. Clients include luxury models from Mercedes-Benz, General Motors and Renault Group.
LG Electronics adopted a sales strategy targeting electrics, which tend to demand innovative interior designs, and stronger earnings for the automotive segment followed. The infotainment displays derive from the company’s expertise with TVs. LG Electronics also repurposed energy-saving motors and inverters found in appliances for automotive applications.
Last year, the manufacturer spun off its EV powertrain business to form a joint venture with Canadian auto supplier Magna International. The new unit started to develop and take orders for EV components. The venture landed deals with GM and other big-name automakers for powertrain parts, and in April the unit broke ground on a plant in Mexico.
“EV powertrain components will increase sales by 50% a year with the cooperation of Magna,” an LG Electronics executive said during an earnings call Friday.
Infotainment systems, e-powertrains and a headlight business purchased in 2018 form the core of LG Electronics’ automotive segment. The company, which said it landed roughly US$6 billion in new orders during the first half of the year alone, is hurrying to expand production facilities.
The automotive segment was once a perennial albatross for LG Electronics, much like smartphones. The company exited mobile phones in 2021, but kept the automotive business in anticipation of the EV era.
To cultivate the potential growth driver, LG Electronics reassigned former smartphone staff to the automotive unit and invested funds earned by the consumer electronics division.
The larger LG group includes LG Energy Solution, the world’s second-largest supplier of EV batteries, as well as display panel producer LG Display and LG Innotek, the maker of onboard camera modules. Group companies market their wares to each other’s customer bases, granting the entire organisation an advantage in terms of orders and price negotiations.
“The automotive business reached an important milestone by turning a profit in the April-June quarter,” said Lee Dong-joo, an analyst at SK Securities. “We can expect growth going forward in the medium to long term.”
However, the automotive supply business accounts for just over 10% of LG Electronics’ sales. It remains to be seen whether car components will compensate for the lull in the consumer electronics division.
Rival Samsung Electronics is focusing on automotive components as well. The group said in 2016 that it would spend US$8 billion buying out Harman International Industries, a US supplier of car navigation and audio systems. Harman started as a poor earner, but now the subsidiary sees its numbers rise.
Harman’s operating margin improved to 6% in 2021 from 0.6% in 2017. During the second quarter, revenue jumped 23% to 2.98 trillion Korean won, an all-time quarterly high. Display components and software enjoyed synergy with Samsung Electronics, according to the group.
Similarly to LG, the Samsung group includes affiliates that supply the automotive industry, such as battery maker Samsung SDI and electronic components manufacturer Samsung Electro-Mechanics. Thanks to Samsung’s mobile phone tech, the South Korean group landed billions of dollars in orders from American EV maker Tesla, whose cars often have been described as smartphone on wheels.