Sara Hwang, Head of IR from LG Energy Solution. Thank you for joining our Q4 2023 Earnings Conference Call. First, I'd like to introduce who are present today. CFO, Lee Chang Sil, Kang Chang Beom, CSO, Jang Seung-Kwon, in charge of finance and accounting group, Lee Sangyoon, in charge of finance, Jung Jae-ho, in charge of planning and management, Kim Kyounghoon, in charge of advanced automotive battery planning and management, Oh Yooseong , in charge of mobility and IT battery planning and management, and Choi Seung-Don, in charge of ESS battery planning and management. 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 also downloadable on the corporate website.
In this conference call, I'm going to briefly share our Q4 financial results and annual business performance and key initiatives, and then CFO will explain 2024 market outlook, key initiatives, and annual guidance, 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 strategies. First, let me explain 2023 key achievements. As a result of actively responding to demand centering around North America, which showed relatively solid growth, annual revenues amounted to KRW 33.7 trillion. We have continued to grow at a considerable pace of 30% per year for two consecutive years.
Regarding operating profit, despite the lagging impact of the high cost of input raw materials compared to the battery ASP, as metal prices continued to decline throughout the year, with efforts to improve costs, such as reducing logistic costs and improving yield and productivity on top of IRA tax credit benefits of around KRW 677 billion recognized profit, annual OP recorded KRW 2.2 trillion, up 78% YOY. As clearly shown in these financial results, last year was the year where our company began North American business in earnest. GM JV phase I, which began operation from the beginning of 2023, carried out stable mass production based on our operation excellence. Through this, together with Michigan plant, we are able to preemptively recognize IRA tax credit.
Also, we decided investment for cylindrical and ESS product in Arizona, and accordingly, we are establishing production infra. In addition, we have further strengthened our customer portfolio. Last May, we decided to set up a second JV with a capacity of about 30 GWh with Hyundai Motor Group in Georgia, U.S. in last October, we have achieved the conclusion of a supply contract with Toyota, the world's number one automaker, of about 20 GWh. As a result, the order backlog has increased by about KRW 300 trillion over the past two years. We have secured all of the global top nine OEMs as our customers. Lastly, to build a sound, sustainable supply chain, last May, we signed an equity investment and long-term supply agreement with a company owning a lithium mine in Canada.
Last June, we signed a joint development agreement and investment contract for artificial graphite. By doing so, we're expanding direct sourcing of IRA-eligible minerals within the U.S. FTA zone and also have adjusted our supply chain to comply with FEOC regulations. Furthermore, we established a recycling joint venture in China last August with competent partners. At each production base, we are exploring strategic collaboration for battery recycling to establish a systematic closed loop for virtuous cycle of resources. Next, let me briefly explain Q4 business results. In Q4 2023, revenue marked about KRW 8 trillion. Based on the production of GM JV phase I , we expanded our EV battery shipment toward North America region. Also, in active response to the demand of power grid in North America, ESS revenues grew about 3x QOQ.
However, impacted by conservative year-end inventory holding by major EV customers, the decline in battery prices due to metal price erosion, revenues in Q4 was down 3% QOQ. For profitability, with the lagging impact of input raw material prices expanded, fixed costs increased due to the adjusted utilization rate in the production line in Poland in response to demand slowdown in Europe. As a result, operating profit in Q4 2023 amounted to KRW 338.2 billion, down by 54% QOQ. Meanwhile, IRA tax credit effect increased by 16% QOQ, resulting in operating profit of KRW 88.1 billion won without IRA tax credit. In non-operating item, even with foreign currency-related profits, such as translation profit from foreign currency-denominated borrowings due to some disused asset disposal and others, non-operating losses in Q4 came in at around KRW 51 billion won.
The net profit recorded are 190 billion KRW with net profit margin of 2.4%. Next, financial position. The total assets at the end of 2023 increased by KRW 7,138 billion from the previous year-end to stand at KRW 45,437 billion, with liabilities to equity ratio of 86% and net debt to equity ratio of 24%. For annual cash flow, in spite of around KRW 4.4 trillion of EBITDA generation, around KRW 2.8 trillion of issuance of domestic and foreign currency-denominated corporate bond and others, CapEx amount was around 10.9 trillion KRW, which was mainly executed for new JV capacity in North America.
The cash balance at the end of the year d ecreased by KRW 869 billion, compared with the pre-previous year end, to reach KRW 5.069 trillion. Let me move on to our next part, by CFO. Good morning, evening, this is Chang Sil Lee. In this conference call, we'd like to share our view on market outlook and the key initiatives that we will be focusing on this year. First, we'll explain how we are forecasting the battery market in 2024. First, the global EV demand, which is the most impactful market for us, is expected to grow at the mid-20% range compared to the previous trend of over 30% every year. A temporary slowdown is expected. Nevertheless, North America, where the company's focus, is expected to grow at a rate relatively higher than other regions, so its EV penetration rate is forecast to reach mid-10% in 2024.
Meanwhile, looking at the price trend of lithium hydroxide, which is a major raw material for batteries, its steep decline has continued since Q4 2022 throughout 2023. The price is now down about 80% compared to the peak and averaging at $14 per kilogram. Until the first half of this year, cathode and battery prices are expected to be under such impact. That said, OEMs are likely to control the inventories in a conservative manner for the time being. Like this, this year's demand environment is subject to some volatility and uncertainty, but we believe that there are opportunities for growth. In particular, OEMs active markdown efforts of EVs and the intention to launch mass-tier models are anticipated to have positive impact on improving consumer interest and purchasing sentiment in EVs.
Also, the downward trend in metal prices that has continued for over one year will ease the burden of battery prices compared to the past. That said, as soon as the inventory currently held by OEMs is depleted, we expect restocking demand to be realized. In terms of competitive dynamics with Chinese battery suppliers engaging market competition, the competitive environment in Europe is getting more fierce. Also, in this mass-tier EV segment, interest in affordable battery solution is increasing, which in turn intensifies competition for related chemistry technology. Nevertheless, EV demand in North America, as mentioned, is forecast to stay relatively solid, reaching over 30% growth. On the other hand, due to various regulation in the US and other regions, it is true that there are a limited number of suppliers capable of reliably producing batteries at local sites.
So for the company like us, which pursue localization preemptively based on abundant global operation know-how, we think it will act as an opportunity to differentiate quality and technological leadership, as well as maximize first movers advantage. Meanwhile, as a factor that has a significant impact on the EV and battery industry, the regulation and policy landscape cannot be left out. There may be temporary volatility due to the U.S. presidential election, but in the mid to long run, the need for global carbon neutrality to ensure sustainability, and as part of this, the trend toward expanded electrification remains unchanged. Also, like IRA in the U.S. and CRMA in Europe, supply chain localization policy by region will also serve as an opportunity for us, because we have already secured regional battery production and value chain.
In this critical market environment, we will be committed to turning this into opportunities so that, we can have competitive superiority as a global first mover when demand recovers. So we are going to focus on implementing these three key initiatives thoroughly. First, establishing technological leadership. Second, securing cost competitiveness. And third, preparing for future business to strengthen our fundamentals and achieve qualitative growth. First, we aim to secure a level of technological leadership that outperforms our competitors. In automotive battery area, for the premium segment, where we already have strength, we plan to continue to advance materials such as NCMA with over 90% of nickel and silicon anode materials. Also, we're going to differentiate products with advanced thermal safety so that we can widen the gap with our competitors more clearly.
In addition, by focusing on timely launch by 2025 of new products for mass-tier segments such as high-voltage mid-nickel and LFP, we'll further strengthen our customized product portfolio to meet EV market needs in all segments. In the small battery business, we'd like to gain competitive edge through mass production of 46-Series, a new cylindrical form factor from the second half of this year. Additionally, in the ESS business, we are starting to supply LFP product in earnest, which began production at the end of last year, and also plan to expand our integrated solution business. Second, securing structural cost competitiveness. In a business environment where external volatility is somewhat high, such as this year, we believe that creating a concrete cost structure capable of maintaining unwavering competitiveness despite any external variables is all the more important.
Therefore, we plan to expand direct sourcing to include precursor in addition to existing metal sourcing. Also, by conversion of material through technological development and strengthen direct investment in value chain, we'll secure fundamental cost competitiveness. Also, based on smart factory, we'll reduce fixed costs through improved productivity and quality, and continue to optimize major overhead costs, including logistics and utility costs and expenses. Lastly, we'll do our best for future readiness for sustainable growth. With the aim to produce semi-solid batteries and lithium- sulfur batteries by 2026-2027, we'll proceed with the development of next-gen batteries as planned. In terms of process and technology, we'll accelerate the development of dry electrodes with energy density and cost advantages, and we'll start manufacturing our product, apply with new stacking technology with advanced quality and processes from this year.
In addition, in the recycling business, we want to establish closed loop to secure metal recycling business preemptively with more concrete collaboration with partners in each region. Last but not least, let us share our annual guidance as we forecast now. First, revenue guidance. We are planning meaningful growth based on the production volume in North America, which is our strategic market, but due to impact of metal prices starting from a fairly low level, we expect 2024 annual revenue to grow at the mid-single digit level YOY, which is lower than the previous growth rate. Regarding CapEx investment, we will steadily prepare to expand our production base in North America, including GM JV phase II , Stellantis JV, and Honda JV, which will become our growth engines.
At the same time, we want to adjust the speed of investment execution efficiently and flexibly according to market conditions. Based on this, this year's capacity eligible for IRA tax credit is expected to be 45 GWh-50 GWh, more than double the previous year. Investors, analysts, and shareholders, for the past three years since the split-off, LG Energy Solution has achieved remarkable growth by winning large-scale orders based on customer trust and strengthening operational excellence. Well, this year, a somewhat tough environment is projected. However, we'll rather use this as a stepping stone for greater growth and leap forward. By carrying on solidifying our fundamentals, we will definitely make this an opportunity to achieve qualitative growth. Thank you. So this is the end of presentation. Let us move on to Q&A session. We will limit the number of questions to two per each person.
[Foreign language] Questions will be taken according to the order you have pressed star and one. For cancellation, please press star and two on your phone. [Foreign language] The first question will be presented by Joe Yeung from HSBC Securities. Please go ahead with your question.
[Foreign language]
Thank you very much for your question. Thank you very much for taking my questions, and also thank you very much for giving us a very detailed briefing, despite the not so easy environment. It seems as if the guidance for the year of 2024 was presented, but I am also curious about the short-term demand forecast, because it appears to be a bit unclear at this point. So what is the company's forecast for the first quarter demand, as well as the business results? And second is about the EV battery demand forecast. So when does the company believe that the demand for the EV batteries will also start to improve?
[Foreign language] Yes, CEO Chang Sil Lee.
[Foreign language] ... 또 신규 증설의 캐파에 대해서는 트러블 슈팅을 제대로 해서 첫 양산 시점부터 생산 효율이 맥시마이즈 되도록 하는 활동들을 진행하고 있기 때문에, 이러한 것들을 통해서 손익은 반드시 만회를 해 나가도록 하겠습니다. 앞서 설명드린 바와 같이, 여러 외부 요인으로 인해서 금년 경영 환경은 녹록치 않아 보입니다만, 말씀드렸던 것처럼 이런 시기에 오히려 저희가 차분하게 내실을 다지면 당연히 더 큰 성장의 기회가 충분히 있다고 확신합니다. 따라서 펀데멘탈한 경쟁력 확보를 위해서 제품 준비하고, 원가 경쟁력 체계적으로 확보하고, 밸류체인 강화 등의 미래 준비를 체계적으로 해서 근본적 경쟁력을 더욱 공고히 함으로써 새로운 도약을 반드시 이어갈 수 있도록 철저히 준비하겠습니다. 예, 이상입니다.
Thank you very much for your questions. Of course, I do understand there would be curiosity about our short-term expected performance. Now in the first quarter, revenue is expected to fall QOQ due to a generally soft battery demand, with declining prices of key metals like lithium continuing to affect ASP. But starting this year, IRA subsidies will be available to U.S. consumers at the time of purchasing an EV, and full-scale new vehicle lineups are planned from strategic customers in the first half of the year. We will actively respond to the relatively strong EV demand in North America, which is expected to gradually improve revenue starting in Q2.
Now, from the PNL perspective, profitability is expected to decline in Q1 due to, as I mentioned earlier, the increased lagging effect of raw material costs arising from continued decline in metal prices and lower utilization in Europe as OEMs adjust their production. But we do intend to offset the impact through cost innovation, such as material cost innovation and logistics and operation cost reduction, as well as by maximizing production efficiency of new capacity from the very beginning with troubleshooting. And through these efforts, we will improve profitability down the road. And as was explained in the briefing, the business environment in 2024 will be challenging due to a number of factors of the circumstances, but we believe that it can also be turned into an opportunity for greater growth if we use this time to turn to ourselves and focus on solidifying our fundamentals.
We will further strengthen our fundamental competitiveness and lay the basis for a new leap by preparing competitive battery products, ensuring cost competitiveness, and preparing for the future by strengthening our value chain.
[Foreign language] 그 CSO 강창범입니다. 그 두 번째 EV 디맨드에 대해서 제가 좀 말씀드리도록 하겠습니다. 그 EV 시장은 현재 그 OEM의 재고 조정 작업이 좀 진행이 되면서 단기적으로는 좀 수요 완화 요인이 있다고 판단을 하고 있습니다. 그리고 또 한 가지는 그 내연기관차 대비해서 OEM의 EV 수익성이 아직 좀 낮은 모습을 보이고 있어서 OEM들이 기존에 공격적이었던 판매 계획을 일부 조정하는 모습을 좀 보이고 있습니다. 그럼에도 불구하고, 그 OEM의 EV 신, 신모델 출시가 확대되면서 성장 기조는 북미, 유럽, 중국 시장 모두에서 유사하게 이어질 것으로 판단이 됩니다. 전체적으로 올해는 전년 대비 배터리 용량 기준으로는 10-30% 수준의 성장을 좀 이어갈 것으로 예상하고 있습니다. 2023년도에는 그... 용량 기준으로 30% 이상 성장을 했었고, 메탈가가 이제 상승하면서 매출 규모에서는 상당히 긍정요인, 긍정적인 요인을 미쳤다고 좀 판단이 되어지고요. 올해는 성장 20-30% 하지만, 메탈가는 약간 하락이 되면서 매출 규모에 좀 영향을 줄 것으로 판단하고 있습니다.
[Foreign language] EV, then the expansion of the launch of affordable electric vehicles with improved price competitiveness, and strengthening of charging infrastructure, etc., from the second half of 2025 onwards, it will somewhat recover the previous growth potential, I have such expectations. That's all.
This is the CSO Chang Beom Kang, responding to the second part of your question. Now, in the EV market, there are short-term factors that are likely to dampen demand due to OEM's inventory correction. What had been aggressive sales plans are now being partly adjusted, as OEMs are seeing lower margin from EVs than ICE vehicles. Despite this, OEMs are expanding their new EV lineup, which is carrying the growth momentum across North America, Europe, and China. For the year overall, about 20%-30% growth in battery capacities is expected YOY. Now, of course, in 2023, there was 30% growth, in the battery capacity, and also metal prices were rising, which bodes quite well for the revenue as well.
But then this year, as I have mentioned earlier, we are also looking for another 20%-30% growth in terms of the battery capacity. But then the metal prices are likely to fall, and again, we will be seeing the impact on the revenue as well for the year. And it is true that we are seeing softening of demand growth, but we expect to return to previous growth momentum from 2025, thanks to improved EV product competitiveness, more introduction of affordable EVs with better price competitiveness, and stronger charging infrastructure.
[Foreign language] 다음 분 질문 받겠습니다.
다음으로 질문해 주실 분은 신한투자증권의 정용진 님입니다. The next question will be presented by Jung Yong-jin from Shinhan Securities . Please go ahead with the question.
[Foreign language] 네, 정용진입니다. 저도 질문 두 가지만 드리고 싶은데요. 저희 북미 최대 고객사 중 하나인 GM 같은 경우에 최근에 이런 EV 신차 모델들의 약간 출시 지연 같은 뉴스 플로우들이 나오고 있는 것 같습니다. 이런 이것들이 저희들의 어떤 물량이나 수요에 영향을 주지는 않는지 궁금하고요. 아무래도 저희가 가이던스로 IRA 크레딧도 알려주셨다 보니까, 이런 것들이 어느 정도 연계돼 가지고 영향을 미치고 있는지 좀 알고 싶어서 질문 드린다고 봐주시면 될 것 같고요. 두 번째로는 전반적으로 뭐 전기차 수요에 대한 얘기들을 많이 해주셨고, 이게 계속 성장할 테지만 좀 비선형적으로 성장할 수밖에 없다라는 얘기를 해주신 것 같은데요. 이럴 경우에 저희 중장기적인 투자 전략들이나 이런 캐펙스 계획들이 바뀌시는 건지, 어떤 로드맵, 추가 신규 증설 로드맵들 같은 것도 한번 업데이트 해주시면 좋을 것 같습니다. 이상입니다.
Thank you for taking my questions. I also have two. Now first, one of the company's major customers in North America, GM. It seems as if there is some delay in the launch of their new models. And will this also have an impact on the company's expected volume and demand? And also, given the fact that the company has already given guidance about the IRA credit, does the company believe that this will have an impact on the company as well? And the second question is, now, a lot has been said about the EV demand, and I take the message to be that growth is going to continue, although it is going to be non-linear. Then, does this also mean that there would be some changes to the company's medium to long-term investment strategy?
I would hope that there would be some updates on the overall roadmap.
[Foreign language] 첫 번째 질문, GM의 EV 신규 모델 출시 연기에 따른 물량 상향 조정 가능성에 대해서 답변드리겠습니다. 답변자는 자동차 기술개발 담당 김경훈입니다. 작년 고객은, 파트너사는 신규 EV 모델 출시 연기 등 보도가 있었고, 수요 우려감이 큰 것으로 알고 있습니다만, 당사는 고객과 시장 상황 및 물량 협의를 지속해 오고 있습니다. 전반적으로 주요 OEM들의 전동화 속도 조절에 대해서는 당사의 운영 계획에 반영을 하고 있으며, 이를 통해 생산과 투자 속도를 긴밀히 조정해 나가고 있습니다. 앞서 말씀드린 것처럼, 금년도에는 GM JV 2기 양산 매출이... 물량이 매출에 기여하기 시작함에 따라 연간 총 45-50 GWh 수준의 IRA 텍스 크레딧 수요를 받을 것으로 예상하고 있습니다. 이상입니다.
This is Kim Kyung-hoon, in charge of Advanced Automotive Battery Planning and Management, responding to the first part of your question about the GM's delayed launch of new EV models and the possible impact on the company. Now, we do understand that there are some concerns over demand also, especially coming from news reports on the postponement of the launch of our JV partner's new EV models last year. But we are closely discussing volumes with our customers. We will adjust our pace of production and investment accordingly by reflecting the major OEM's plan to adjust their process of electrification. And as previously explained, we expect to benefit from the IRA tax credit of approximately 45-50 gigawatts per annum this year, as production volume from the GM JV phase II begins to contribute to revenue.
[Foreign language] 예, CFO 이창실입니다. 두 번째 질문 주셨던 EV 수요 조정에 따른 중장기 캐파나 신증설 캐파 투자 계획에 변화가 있는지 질문을 주셨는데, 당연히 관심이 크실 걸로 보고 있습니다. 그리고 이게 저희 미래의 모습을 어떻게 보면 나타내는 여러 가지 숫자들이기 때문에 관심이 크실 걸로 보고, 이와 관련해서 말씀을 드리면, 올해 신규 양산이 시작되는 저희 프로젝트가 GM JV 2기가 있고, 현대차 인도네시아 JV가 있습니다. 이 두 프로젝트들은 예정된 일정대로 준비를 해서 안정적인 양산을 준비 중에 있습니다. 또한, 2025년 이후 양산이 계획되어 있는 프로젝트로는 GM JV 3기, Stellantis JV, Honda JV, 현대 북미 JV와 더불어서 저사의 단독 공장인 Michigan 증설, 그리고 Arizona에 짓고 있는 원통형 및 ESS 공장 등이 있겠습니다. 이와 같은 프로젝트들은 변함없이 계획대로 추진해 나갈 계획입니다. 다만, 최근의 시장 상황과 고객 수요의 변화를 예의주시하면서, 전체적으로 속도 조절이 필요한 프로젝트가 있으면, 고객과 긴밀하게 협의하면서 조정 검토를 해 나갈 계획입니다.
[Foreign language] 종합적으로 말씀드리면, 저희가 지금까지 말씀드렸던 투자 기준은 당연히 유지를 해 나가되, 속도에 대해서 일부 조정이 필요한 영역이 있으면, 그런 부분들은 유연하고 능동적으로 투자 집행을 조절해 나갈 생각입니다. 이상입니다.
This is the CFO, responding to your question about any changes to our mid- to long-term capacity operation plan, additional new plans or investment plan changes in response to the EV demand adjustments. Now, again, I do appreciate your interest in this matter, and obviously, because these are the numbers that would point the direction and the future shape of the company. So again, I do understand and also appreciate the high interest. Now, this year, we have two new projects scheduled for expansion: GM JV and Indonesian JV with Hyundai Motor. We are preparing for a stable mass production as planned on schedule, and there are also projects that are scheduled to go into mass production from 2025.
GM JV Phase III, Stellantis JV, Honda JV, and Hyundai North American JV, as well as the company's own Michigan plant build-up, and the cylindrical plant and ESS plant, in Arizona. Now, these projects will also move ahead as planned, but we will remain, flexible and proactive. As we keep closely monitoring the changes in the market environment and customer demand, when and where we see the need to adjust the pace, we will do so in close consultation with customers. So to sum up, overall, our investment strategy and, plan, as well as the direction, remain largely unchanged. But whenever we see the need to moderate or adjust the pace, then we will do so with flexibility and preemptiveness.
[Foreign language] The next question will be presented by Cho Hyunryul from Samsung Securities. Please go ahead with the question
[Foreign language]
I also have a two-part question. First is about the metal prices decline. So with the decline in the metal prices and the ASP decline, then I wonder, when and so until when and to what extent that the fall in the metal prices would be reflected? And the second question is about the IRA FEOC that had been announced, and I wonder whether there are any changes to the company's supply chain strategy based on this?
[Foreign language]
Now, this is Jung Jae-ho, in charge of planning and management, responding to your question about, how the decline in the metal prices would be reflected into the company's battery ASP. Now, most of the company's contracts are structured to reflect changes in metal prices with a time lag. But when key metals, like lithium and nickel, are in steady decline, our battery ASP also declines.
In terms of profitability, because of this, then a lagging effect of raw material prices is expected until metal prices stabilize, mostly because of the impact from the inventory. We believe that the current price trend in key metals will have an impact on the downward trend of the company's battery prices through Q2 this year. But also at the same time, the downward trend will ultimately lead to a strengthening of price competitiveness of our customers' EVs, which will be a positive factor in driving demand. On the other hand, the structure of reflecting metal prices in the selling price minimizes the impact of long-term cost fluctuations, and also minimizes the impact, and also, helps secure stable profitability.
CSO Chang Beom Kang: [Foreign language]
Thank you. This is the CSO, responding to your question about potential changes to our supply chain response strategy as a result of the IRA FEOC guideline. Now, basically, the company's supply chain strategic direction is building a competitive dual supply chain in the U.S. and non-U.S. geographies. Now, for the U.S. bound products, we are currently building optimum solutions with our materials partners in a location that will fulfill IRA FEOC. In non-U.S. regions, we are improving cost competitiveness and building up strength in supply readiness. Now, we see our scale as a relative advantage in building a global supply chain. And in terms of our preparation for the FEOC response, now, I would like to say that we are very closely monitoring the overall situation, and preparation is well underway as planned, to respond to the FEOC as appropriately.
Discussions are also ongoing with partners for local production of separators and electrolytes that require localization. For critical minerals, we are strengthening our sourcing competitiveness in Korea, Indonesia, Australia and Chile to meet the IRA subsidy requirements.
[Foreign language] 다음 분 질문해 주시기 바랍니다.
[Foreign language] 다음으로 질문해 주실 분은 현대차 증권의 강동진 님입니다. The next question will be presented by Kang Dongmin from Hyundai Motor Securities. Please go ahead with the question.
[Foreign language]네, 안녕하세요. 현대차 증권 강동진입니다. 질문 기회 주셔서 감사합니다. 두 가지 질문드리겠고요. 첫 번째는 지금 유럽 쪽의 EV 수요 둔화가 생각보다 좀 길어지고 있는 상황인데, 저희 폴란드 설비 가동률이 이렇게 높지는 않은 걸로 알고 있습니다. 그래서 이제 향후에 저희가 어떻게 대응을 할 예정이신지 좀 궁금하고요. 대응 방안을 좀 말씀해 주시면 감사할 것 같습니다. 두 번째는 이제 그 저희 원통형 배터리 쪽인데요. 중국 쪽에서 원통형 배터리에, 뭐, 주요 고객사 향으로 경쟁이 이제 심화되고 있는 상황이고, 또 고객사가 물류 이슈나 이런 것들로 인해서 공장 가동 차질을 겪고 있는 걸로 알고 있는데, 향후에 이제 EV용, 원통용, 배터리 수요 둔화 가능성과 또는 향후에 저희가 어떻게 대응할지, 이런 부분에 대해서 아이디어를 공유해 주시면 감사하겠습니다. 그리고 이제 아울러서 4680 배터리 양산이나 이런 부분에 대해서도 업데이트해 주시면 감사하겠습니다. 이상입니다.
Now, we see that in Europe, demand for EVs remains soft, much longer than we had anticipated, and also the company's utilization in Poland is not very high to begin with. So I wonder how the company intends to respond to this sluggish demand in EVs in Europe. And the second question is about the cylindrical batteries. Now, especially from China, there is much fiercer competition regarding the company's major customers on the cylindrical battery front. And also because of logistics issues, the customer is also seeing some difficulties in the factory operations. So what does the company project in terms of the cylindrical battery demand, and how does the company intend to respond to these changes?
[Foreign language]첫 번째 질문, 폴란드 법인의 가동률 하락에 따른 당사 대응 방안에 대해서 답변드리겠습니다. 답변자는 자동차 기획관리담당 김경훈입니다. 작년 중순부터 유럽 지역 고객사들은 EV 생산 물량을 조정하였습니다. 이에 따라 당사도 지난해 사분기부터는 폴란드 법인의 공장 가동률을 조정하였고, 재고 수준도 하향하였습니다. 이로 인해 경영 성과에 영향을 주었습니다. 경기 부진 상황과 보조금 추가 축소 등으로 유럽 고객사의 EV 수요는 당분간 회복 속도가 지연될 가능성이 높아 보입니다만, 당사는 라인 운영 효율화 추진, 리소스 투입 조정, 비용 절감 등 운영상 비율 개선에 집중하여 물량 감소 부담을 최소화해 나가겠습니다. 이상입니다.
Now, I would respond to the question about the sluggish EV demand in Europe, affecting the utilization in our Polish plant. This is Kim Kyounghoon from the Automotive Planning and Management. Now, following the adjustment of EV production volumes by customers in Europe, starting in the middle of last year, utilization rate and inventory level of the company's Poland plant were also downward adjusted from last quarter, which also affected our business performance. But demand for EVs by major European customers is likely to see delay in recovery, due to economic uncertainty and further subsidy reductions. But we also believe that there is the possibility of demand improving when metal prices stabilize and when there is visibility into when battery prices will bottom out.
To flexibly respond to external circumstances, as well as the uncertainties, the company will work to minimize the impact of volume reduction by improving line efficiency, adjusting resource input, and cutting costs.
[Foreign language]Oh Yooseong, in charge of small electric technology and management. Currently, the Chinese market has a relatively high electric vehicle penetration rate and intensifying competition between companies, so there is a risk to the demand for EV cylindrical; it is true that there is a risk to demand. However, looking at the sales situation of our major customers, they are continuing relatively solid growth, and looking back on 2023 for the year, the impact was not large. In addition, our company is now preparing for mass production of the 46 series product in the second half of this year. As of now, it is proceeding smoothly, and through this, we expect to be able to further solidify the demand base for cylindrical.
[Foreign language] Global OEM companies are also continuously expanding, and from the second half, the demand for our company's cylindrical batteries is expected to improve. Therefore, the overall annual volume for 2024 is expected to expand compared to the previous year. That's all.
This is Oh Yooseong from Mobility and IT Battery, responding to the question about the intensifying competition in China and also the EV cylindrical battery, and also the 46-series cylindricals. Now, it is true that there are some risks to the EV cylindrical demand in the Chinese market, coming from the relatively high EV penetration and intensifying competition. But we see that sales by our customers are on solid growth, demonstrating minimal impact throughout 2023. And now the company expects to further establish the demand basis for cylindricals, with production of 46-series cylindricals scheduled for the second half of the year. And it is also currently moving on schedule for mass production to begin in the second half of the year.
And also, given the expectation of continued growth in cylindrical needs by other global OEMs, demand for our cylindrical battery is projected to start improving from the second half, driving volume growth in 2024 YOY.
[Foreign language]다음 분 질문 부탁드리겠습니다.
마지막으로 질문해 주실 분은 유진투자증권의 황성현 님입니다. 질문 부탁드립니다. The last question will be presented by Hwang Sunghyun from Eugene Investment & Securities. Please go ahead with your question.
[Foreign language] 안녕하세요. 유진투자증권 황성현입니다. 2024년 CapEx 계획이랑 그 자금 조달 전망 어떻게 하시는지 좀 말씀해 주시면 좋을 것 같고요. 두 번째로는 ESS 사업부 실적 전망에 대해서 말씀해 주시면 감사하겠습니다. 이상입니다.
Now, my first question is on the CapEx plan and the financing plan for 2024. The second question is about the ESS business. What is the company's outlook for the ESS business results?
[Foreign language]네, CapEx 집행 및 자금 조달 계획에 대해서 말씀드리겠습니다. 재무총괄 장승권입니다. 당사는 작년에 2023년도 약 KRW 10.9조원을 북미 지역 중심으로 신규 Capa 증설 등에 집행을 하였습니다. 올해에도 이와 유사한 수준의 CapEx 집행 금액이 예상되고 있습니다. 현재 계획된 투자 프로젝트 기준으로 추산을 해보면, CapEx 투자 규모는 2026년, 2026년부터는 점진적으로 감소가 예상되고 있습니다. 자금 조달 계획의 경우, 매년 매출 성장을 통해 창출되는 이익을 투자 재원으로 일단 우선 활용할 계획이고, 외부 차입을 적절히 활용해서 대응할 계획입니다. 외부 차입에 대해서 조금 더 설명을 드리면, 작년에 발행한 원화 및 외화 회사채 성공 경험을 바탕으로, 올해도 저희 본사에서 외화 회사채 발행을 계획하고 있고, 미국 에너지부로부터 확보한 장기 저리 차입금과 같은 정책 자금 등을 통해 조달할 계획입니다. 이러한 여러 투자 재원 조달 방안을 지속적으로 검토하여 캐시플로우를 안정적으로 운영해 나가도록 하겠습니다. 이상입니다.
Thank you very much for your question. This is Jang Seung-Kwon, in charge of Finance and Accounting Group, responding to the question about the CapEx plan and the investment plan, as well as the funding plan. Now, CapEx in 2023 was around KRW 10.9 trillion, mainly going into new capacity in North America. In 2024, CapEx is expected at a similar level, and based on the estimation of the investment projects currently planned, CapEx is expected to start gradually decreasing from 2026. And in terms of funding for our investment, we plan to prioritize the use of operating profits generated through our operations, like sales each year. And then, we would also utilize external financing appropriately.
To elaborate a bit further on the external financing plan, the company successfully issued one denominated and foreign currency denominated corporate bonds in 2023, and we plan to raise investment resources based on this experience as, as well, meaning that we plan to issue corporate bonds. And then also there is the long-term and low-interest policy finance that we have secured from the Department of Energy of the U.S.. So these are some of the options that we will continue to review for the funding of the investment, so as to maintain stable cash flow down the road.
[Foreign language]예, 2024년 ESS 실적 및 전망에 대해서 말씀드리겠습니다. 답변자는 ESS 전지 기획관리 담당 최승건입니다. 2024년 ESS 시장은 미국 지역 중심으로 전년 대비 약 30% 수준의 높은 성장세를 이어갈 것으로 예상됩니다. 전력망 시장은 IRA 정책 효과로 인해서 미국 시장 수요가 커질 것으로 전망되고, 주택용 시장 역시 미국 지역 중심 성장이 예상됩니다. 당사는 높은 성장세가 지속되고 있는 미국 지역에서 전력망 중심으로 전략적 고객과의 대량 공급 계약을 추진하여, 안정적인 파이프라인을 확보함은 물론, 수익성 또한 지속 향상시켜 나갈 계획입니다. 이상입니다.
This is Choi Seung-Don, in charge of ESS Battery Planning and Management, responding to the question about the ESS business forecast. ESS market demand in 2024 is expected to sustain its strong growth of around 30% YoY, driven by the U.S. market. Solid demand is expected for the power grid in the U.S., thanks to the IRA policy. For residential, growth is expected, again, mostly led by the U.S. market. Now, the company will keep responding actively in the U.S. market, which is our main market, and especially for the power grid. And, we will also try to secure a stable pipeline with by agreeing on large volume with the strategic customers, so that we will also be able to sustain our profitability. Thank you.
[Foreign language]네, 감사합니다. 이것으로 LG 에너지 솔루션의 2023년 사분기 실적 발표 컨퍼런스 콜을 모두 마치겠습니다. 경청해 주셔서 감사합니다.
Thank you very much. And that brings us to the end of the LG Energy Solution 2023 Q4 Earnings Release Conference Call. Thank you very much for your participation and attention.