‘Fifth year deficit of 863.7 billion’ LG Electronics automobile business… Will Magna join hands and rebound?

VS Business Division in charge of LG Electronics’ auto parts continued to lose for 5 years from 2016
“The break-even point is in 2022… 1 trillion in sales in 2023 and 7% return in 2025 goal”

(Sisa Today, Sisa ON, Sisa On = Reporter Han Seol-hee)

The interest of the industry is increasing as to whether the LG Electronics-Magna electric vehicle parts joint venture, which will be established next year, will lead to a turnaround in the LG Electronics automobile division, which recorded a loss for 5 consecutive years.  ⒸLG Electronics
The industry’s interest is increasing as to whether the LG Electronics-Magna electric vehicle parts joint venture, which will be established next year, will turn the LG Electronics automobile division into a profit, which recorded a loss for 5 consecutive years. ⒸLG Electronics

LG Electronics establishes a joint venture for electric vehicle parts with Magna, the world’s third largest auto parts maker. Accordingly, the industry’s interest is increasing whether LG Electronics’ automobile division, which recorded a loss for five years in a row, can turn into a surplus.

This move by LG Electronics is the second largest investment in the automobile industry since it invested 1.1 billion euros in the acquisition of ZKW Group in 2018. It is also analyzed that the establishment of this joint venture is the final portfolio that LG Electronics drew from the creation of the VS business headquarters in 2013.

LG Electronics, starting with the acquisition of’V-ENS’, an automobile parts design engineering company in May 2013, established the’VS Business Headquarters (then VC Business Headquarters)’ in July, aiming to grow the auto parts business as a future food and cash cow Revealed aspirations.

In August 2018, it acquired the Austrian automotive headlamp company’ZKW’ with 70% shares of LG Electronics and 30% of LG, and transferred the lamp business under the control of VS Business Division to ZKW in December 2019. LG Electronics’ auto parts business results are added to the consolidated sales and operating profit of the VS division.

Despite LG Electronics’ enormous investment, the VS business division is currently suffering from deficit for several years since 2016.

In 2015, when separate profits and losses were first disclosed, the VS Business Division recorded a surplus with first sales of KRW 1.84 trillion and operating profit of KRW 5 billion. Since then, through the acquisition of ZKW, etc., sales have steadily increased, and the scale of the business has increased from KRW 1 trillion to KRW 5 trillion.

However, the VS business division started to record a deficit in 2016 and fell to 3.886.9 billion won in sales and 3654 billion won in operating losses in the third quarter of this year. In particular, the cumulative deficit after the project was estimated at 863.7 billion won as the production of automakers in North America and Europe was disrupted due to the corona 19 effect.

Accordingly, the industry is paying attention to whether LG Electronics’ automobile business headquarters, which had recorded a deficit for five consecutive years, can rebound to a’turn to the black’ through the establishment of a joint venture with Magna.

According to IHS Markit, the global eco-friendly automobile market, which is 11 million units in 2019, is expected to expand to 20.6 million units in 2021 and 56.6 million units in 2025. Considering this growth trend, some say that the joint venture could drive the sales of LG Electronics’ VS business division and emerge as the LG Group’s’cash cow’ in the future.

Immediately after the announcement of the establishment of the joint venture, LG Electronics presented a goal of’achieving sales of KRW 1 trillion in 2023 and an average return of 7% in 2025′ through a conference call. An official from LG Electronics said, “The time to achieve the break-even point (BEP) of the new corporation is expected to be in 2022.”

Meanwhile, the joint venture is expected to be officially launched in July after approval for physical division and establishment of a corporation at the general shareholders’ meeting scheduled for March next year. The headquarters of the joint venture will be established in Incheon, and 1,000 related employees will move to the joint venture. The CEO of LG Electronics, who is an aide of Chairman Kwang-mo Koo, is currently in the water.

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