Thank you for the opportunity to ask questions. I do think that the second quarter performance has been strong. If you look at the market, however, I do think that, in general, there are concerns about the second half because of the uncertainties that still prevail. Could you provide your third quarter and also second half expectations in terms of the business performance going forward? The second question that I would like to ask you is about your North American ESS business, which is something that you have emphasized during your presentation. I do believe that the market also believes that there will be high growth within this area. However, how are you planning to address the demand within the market? If you could share any new orders or your outlook for the business, that would be appreciated.
[Foreign language]
Thank you for asking these questions. I do believe that the questions you have asked are what are the center of interest right now for the market, so thank you for them. For the first question you asked, which was the second half outlook for our business, I can address this. I am the CFO Lee Chang Sil, and maybe for the second question I can ask the related business division to address that question. As you are aware, in the U.S. right now, from country to country, the U.S. is coming to an agreement with various countries about their tariff policies. And as a result to that i n addition to that, The One Big Beautiful Bill Act has been finalized, which had led to some of the uncertainties related to the demand.
Going forward, we do think that somewhat some of the volatility that we have seen within the secondary battery industry would be coming into a more moderate phase going forward. However, as mentioned before, because the IRA in itself has been amended with new policies, on one side for the consumer EV subsidies, it will be coming to an end earlier than initially expected. We do think that naturally in the second half, the EV demand will be impacted. However, if you look at the EV auto sales trends in itself, they remain solid. With regards to the battery inventory that remains within the industry, we do think that towards the second half of the year, there will be adjustments that will be taking place.
If we look at the market for the cylindrical EV customers that we have, there will be new models that will be launched in the market in the second half of the year. Also, for IT manufacturers, there are also demands related to the new models that will be generated. We do think that this will drive an increase in the mobility and IT device-related batteries. In addition to that, related to grid-related projects from the third quarter, we will be full-fledgedly shipping out various production volumes from our site in Michigan. In the second half, we do think that there will be a significant increase in our ESS-related revenue that we will be able to achieve. To talk about our overall profitability, we do think that there will be a full-fledged adjustment of the existing CapEx funds that we have.
Therefore, for a certain period of time, there will be somewhat of a slowdown in EV demand, which we think we can overcome with the ESS business growth that we will be able to see. We are trying to use the existing CapEx capacity that we have in terms of the utilization to maximize it as much as possible. In addition to that, there will be some reallocation of resources and also some cost efficiency efforts that will be put in place to minimize our overall fixed cost. In addition to that, we will be trying to decrease our overall material cost ratio by engaging in cost innovation efforts. At the same time, for mobility and IT devices and ESS-related demand, which we do believe will continue to grow, we do think that this will continue to contribute to our profitability.
Using the second quarter as a standpoint, we will try to continue with the meaningful momentum that we have been able to generate.
[Foreign language]
For the second question that you have asked, which was about how we would be dealing with the strong ESS demand that we see in North America in terms of any new orders that we have and the outlook going forward, maybe I can address that question. I am from the ESS Battery Planning and Management Department. My name is Kim Min-su. If you look at the current situation in the North American market, we do have a strong competitive edge as being the only company that is able to produce LFP ESS products in North America and supply them on the ground. Not only that, but in terms of market demand and also our customer needs, we are preparing a product portfolio that would be able to satisfy these elements.
In addition to that, if you look at the market, because there are more AI data centers that are being created and as a result of that, overall power demand is increasing, surrounding the power grid in itself, there is a very high growth that will continue within the market, representing a CAGR of more than 20%. As a result, in addition to that, on the ESS tax benefit side, these tax benefits are being maintained, which does provide a backdrop of policy support for the market. We think this all in all will lead to a much stronger demand going forward in terms of the demand momentum. As of the end of June, for the company, we already have been able to secure an order book that is above 50 gigawatt hours.
Currently, we also continue to see new order momentums flowing in from a wide variety of customers, including local developers and also utility companies. As of the current time for the company, including new form factors that we have for ESS batteries, we do have various discussions on the supply side for a wide variety of LFP products that are ongoing. In addition to that, there are also discussions for a multiple number of large-scale power grid-related projects. Once these orders are completed, we will make sure to communicate with the market accordingly.
[Foreign language]
The next question will be presented by Kim Hyun-soo from Hana Securities. Please go ahead with your questions.
[Foreign language]
Yes, thank you for the opportunity to ask questions. I have two questions that I would like to ask you about policy. The first is that, as you have just mentioned, in the U.S., the OBBA has been finalized. As a result of that, I do think that there will be impacts on the EV subsidies that were provided and also the renewable energy market as a whole. In terms of the demand changes that may take place as a result of that, could you break it down between what changes you see on the EV demand side and on the ESS demand side and talk about what strategies you are going to implement to address these changes accordingly?
The second question that I would like to ask you is that if you look at the AMPC and ITC-related changes that have been taking place with the new act, there is a new PFE clause that does need to be satisfied from 2026 to be eligible for AMPC and ITC credit. This is a new condition that has been added. What impact do you see coming from this, and how are you planning to deal with this, and how is the company preparing for this going forward?
[Foreign language]
For the first question that you have asked is with regards to the changes that have been taking place in the tax act, what the overall impact would be on EV and ESS demand and what would be our strategy to adjust this going forward. Maybe I can address that. I am from corporate strategy. I am Eon-hee . As the CFO did explain in detail in the presentation before, if we look at the overall situation from the end of September, the overall EV subsidies that would have been provided will be going away. There is a new prohibited foreign entity or PFE procurement condition that has been added on. We do think that this will have an impact on the EV and ESS business environment.
To talk about the EV side first, right now, because the subsidies will be abolished going forward, we do think that on the OEM side, they will be pacing themselves a bit more in terms of their EV business expansion. After the subsidies end, from that point of time until the early part or first half of next year, we do think that there will be an overall slowdown in the demand within the market. Nevertheless, we do think that the OEMs will be continuously expanding their low-end EV lineup so that they can lessen the burden that consumers may feel when purchasing new cars. In addition to that, as autonomous driving becomes fully commercialized, with that, we do think that will increase consumers' willingness to pay for EV vehicles.
For the company, from the first half of next year, we will be utilizing and putting our North American JV online. We do think that will lead to a gradual increase in the overall volume growth that we see. Therefore, for EV customers that we have, we're talking about prismatic battery development, LFP, and also lower-cost LMR solutions so that we can strengthen our fundamental competitiveness within this area. On the ESS side, right now, for power grid-related market demand, we do believe that next year the overall demand growth will be above 60%. That would be a very high level of growth that we would expect. Since the ITC credits are something that will be maintained, we do not believe that there will be a large overall change or impact from this.
Because we do have local production capabilities and there continues to be a preference for non-Chinese providers, we do think that trend will continue going forward. Therefore, utilizing the better conditions that we have on the supply chain side, we do think that we can apply lower-cost materials and strengthen our cost competitiveness. At the same time, also utilize the competitive edge that we have as being the only company that is able to provide LFP ESS batteries on the ground. In light of the increasing demand or sharp increase in demand that we see going forward, we will continue to engage in our marketing activities and continue to win orders going forward.
[Foreign language]
Yes, this is Eon-hee again. Maybe I can address your second question, which was the new conditions for PFE that have been installed, what the overall preparedness that we have or strategy that we have to achieve this and what we are going to do going forward. Even before the current changes take place, the company had been planning to create a supply chain that satisfied the previous FEOC conditions under the IRA that we required to be eligible for consumer subsidies. If you look at the new PFE-related procurement conditions, in some areas, we do actually believe that they are less demanding than the previous FEOC conditions. We do think that we can utilize this to optimize our supply chain. First, under the current supply chain conditions, if you look at manufacturers or producers, they will be allowed to procure a certain percentage from PFEs each year.
These conditions will be limited to direct material. We do think that this enables us to utilize some low-cost supply chains that are out there. In addition, since EV consumer subsidies will be abolished, we will no longer be required to source battery parts from the U.S. or critical raw materials from FTA countries. This provides us more discretion in the way that we operate our overall supply chain. At the same time, for materials that we will be sourcing to be compliant with the PFE conditions in the short term, that would be a bit more challenging. I do think that we would have a bit more time to prepare for the situation going forward. Thus, we can effectively utilize our existing suppliers, which have long-term supply capabilities and cost competitiveness.
Over the mid to long- term, we would be able to dualize our supplier base and also ensure that we satisfy PFE conditions. At the same time, we can increase or strengthen our cost competitiveness and improve our profitability.
[Foreign language]
The following question will be presented by Tim Bush from UBS Securities. Please go ahead with your questions.
Thank you. I have two questions. The first is on ESS. Considering your new ESS LFP capacity in the U.S. that started operation in the second quarter, what is the outlook for further ESS capacity expansion? The second question is on overall North America demand. You had a very solid first half. What is the outlook for the second half of the year? Thank you.
[Foreign language]
[Foreign language]
For the first question that you asked, maybe I can address that. This is Min-su from the ESS battery planning and management side. As you have mentioned, from May of this year, from our Michigan site, we have been commercially producing LFP batteries for ESS purposes. Utilizing the overall capabilities that we have accumulated in North America in conducting local production and operations, and adding to that also using the LFP production know-how that we have accumulated in China, we are able to stably produce and supply as of the current time. If we look at the demand in the U.S. for power grid-related ESS, we do expect that versus our expectations, the market is growing at a faster pace. We do want to maximize the business opportunity that this does present.
This year, we had expected that overall approximately 17 GW hours would be this capacity that we would have from Michigan's capacity. This is something that we want to stably ramp up. At the same time, from the existing sites that we have, we are going to transition or review actively the possibility of transitioning some of the EV capacity that we have for ESS purposes. By doing this, by 2026, we want to reach 30 GW hours or higher in total capacity. This is the overall target under which we are conducting discussions. In addition, from a product standpoint also, in addition to the current long-cell LFP products that we have and utilizing the SI capabilities that we have, we do want to provide a differentiated product competitiveness and at the same time also have innovation in terms of materials and designs.
We are in the process right now of developing new large capacity cells. By stably expanding our business within the U.S. and also gaining more market share, this would be the overall direction that we would be heading going forward.
[Foreign language]
This is the CFO, Lee Chang-shil, and maybe I can address your second question. I do think that although we have discussed this before, you still have a lot of questions about the second half outlook for the overall business. Maybe I can briefly provide an explanation. If you look at the first half U.S. shipments that we had, which was relatively strong, and if you look at the drivers behind that, first, I do think that it was that for our key customers, their overall EV sales performance in itself was better than they initially expected. That was one factor. However, added to that, I do think that on the customer side, there was a lot of preemptive pull-in demand that they had because there were a lot of variables that could take place, for example, a lot of policy uncertainties within the market.
If you look at the second half, because the EV subsidies will be going away after September, we do think that will lead the OEMs to pace themselves in terms of their overall electrification expansion. Added to that, we do think that relatively there may be more conservative inventory management as a result of that. Therefore, in terms of the growth momentum, I do think that for the time being, it cannot help but be somewhat limited. However, that having been said, on the North American ESS side and the overall customer demand there, as mentioned before, it is much stronger than we had expected. As the company, the only company that has local ESS production capabilities, we do think this would be a very attractive opportunity for our company.
As we have said for the time being, we do think that the void that we have on the EV side can be somewhat fulfilled with ESS demand that we would have going forward. For the company, we will continue to review the market demand and customer needs so that we can come up with the most efficient operations for the capacity that we have. This is something that we are in discussions with our customers about. Therefore, in terms of the production timing and sizes that we have for the different sites, this is something that we're adjusting on a real-time basis to ensure that we can reduce any capacity loss or investment loss as much as possible. However, one thing that we do believe that is very fortunate is that for the ESS demand in North America, there is a very solid trend that we see of growth.
Therefore, we think that in North America, using the overall capacity advantages that we have with local production, we will continue to utilize some of the capacity that we have, including JV capacity, to cater to first the ESS-related demand that we see and to try to maximize the overall capacity efficiencies that we have for our operations.
[Foreign language]
The last question will be presented by Jin-soo Kwon from Kiwoom Securities. Please go ahead with your questions.
[Foreign language]
Yes, thank you for the opportunity to ask questions. There are two questions that I would like to ask you. First is that if you look at the European overall volume trend that you see versus the U.S., it does seem to be that it is a bit sluggish. What chance do you see within the overall market in Europe, and how are you going to address that in terms of your strategy going forward? The second question that I have is that there is some development of LFP batteries and also some prismatic LMR batteries that you have for General Motors. What is the recent updates about that, and what would be your future strategy for production?
[Foreign language]
For the first question that you have, which is about the European market in terms of the trends and what our strategy is, maybe I can address that. This is Chang-shil from Planning and Management. If you look at the overall performance that we have seen in the first half, though the EV market in Europe was relatively stronger than expected, if you look at our overall shipments versus that to the U.S., it was a bit sluggish. I do think that there are a couple of reasons behind that. One would be that in terms of the overall inventory management, we do think that our customers were a bit conservative on that. The second is that if you look at where the overall EV demand growth is coming in the European market, it seems to be on the mid to low end.
There are more Chinese batteries that are being used for EV vehicles in which the Chinese OEMs are trying to make inroads into Europe. We do think that that somewhat had an impact. As this type of competition does continue, we do think that, relatively speaking, the overall slower shipments that we see in volume for Europe will continue for the time being. However, in the second half of the year, if you look at our key customers, there are some new model launches that are being planned. In addition to that, from our side also, we do have some new low to mid-end chemistries that will go into commercial production one by one. That is something that is being prepared. In addition, within the year, we are planning to convert some of our EV lines for ESS purposes and also produce off of those lines.
We think that that will improve the overall utilization of our Poland capacity and the overall profitability that we see within this area. Going forward on a relative basis, we do, in the premium market in which we think that we have a stronger competitive edge, want to actively pursue more order opportunities based upon the new form factor for cylindrical batteries, which would be the 46-Series. Using that competitiveness, we want to seek more opportunities and try to address the demand within the market.
[Foreign language]
The second question that you asked, which was the new developments that we have with GM and also our future product development strategy, maybe I can address this. From the Advanced Automotive Battery Planning and Management, this is An Min-gyu. Right now, with our strategic customer, which is GM, we do have a co-development of prismatic-type batteries that is going according to plan without any issues. As recently had been mentioned in the news, right now we are developing or looking at the development of lower to mid-end types such as LMR and LFP batteries. By this, we are trying to diversify not only our form factors but also chemistries so that we can cater to the demand in each of the different segments and also the needs that customers have to diversify products.
We want to be able to be in a position to provide a wide variety of product solutions. Using the commercial production as the general assumption, there are various options that are currently being reviewed. Due to the recent policy changes that we have seen within the market, there is some uncertainty with regards to EV demand going forward. As a result of that, I do think that it would be a bit too early for us to discuss the production timelines or the size and overall specifications of products that we are currently looking at. However, for the existing NCM pouch products, we are going to continue to produce that from our Ohio site, the JV phase 1, which is currently in operation and is producing very stably.
For the new prismatic-type LMRs or LFP or other new products that we have, the overall plan would be to produce them from the Tennessee JV phase 2, which would gradually expand its capacity going forward. In light of the overall demand backdrop, we do want to have flexibility in catering to the situation so that we can maximize our capacity utilization as much as possible.
[Foreign language]
Yes, with this, we would like to wrap up our second quarter earnings conference call for 2025. Thank you once again for.