S&P has downgraded its credit outlook for LG Chem and LG Energy Solution to 'Negative', signaling potential challenges ahead.
The main reason for this change is a 'dual pressure' situation hitting the company from two sides. First, the petrochemical business, a core part of LG Chem, is stuck in a long-term slump. Second, the once-booming electric vehicle (EV) market in the U.S. has cooled down significantly, directly impacting the battery business of LG Energy Solution.
Let's look at the EV side first. The slowdown began after U.S. tax incentives for EVs expired in late 2025. This policy change led to a sharp drop in demand, causing major customers like Ford to cancel large battery orders. This creates significant uncertainty about future sales and cash flow for LG Energy Solution.
Simultaneously, the petrochemical market is facing its own crisis. An oversupply of products, largely from new facilities in China, has pushed profit margins to historic lows. This prolonged downturn puts a financial strain on LG Chem, the parent company, making it harder to support its various businesses, including the massive investments needed for batteries.
In response, the companies are not standing still. LG Energy Solution is making a decisive move to protect its finances by slashing its investment plans (CapEx) by over 40%. They are also shifting focus to the rapidly growing Energy Storage System (ESS) market, which isn't as affected by consumer EV trends. Meanwhile, LG Chem has even mentioned the possibility of selling a small portion of its stake in LG Energy Solution to secure more cash if needed.
In essence, S&P's 'Negative' outlook is a warning that the combined impact of the EV slowdown and the petrochemical crisis could weaken the companies' financial health over the next year. The key things to watch are whether their defensive moves—like cutting investments and focusing on ESS—are enough to stabilize their finances, and if the EV market shows signs of recovery in the latter half of 2026.
- Glossary
- Credit Rating Outlook: An opinion from a rating agency on the potential direction of a company's credit rating over the next 6 to 24 months. 'Negative' suggests a downgrade is possible.
- CapEx (Capital Expenditure): Funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment.
- Spread (Ethylene-Naphtha Spread): A key indicator of profitability in the petrochemical industry, representing the difference between the price of the final product (ethylene) and the raw material (naphtha).