LG Energy Solution, Ltd. (A373220) Earnings Call Transcript & Summary

Good morning. This is Sara Hwang, Head of IR from LG Energy Solution. Thank you for joining our Q1 2023 Earnings Conference Call. First, I'd like to introduce who are present today. Lee Chang Sil, CFO/CSO; [ Chang Jihun ], in charge of Finance and Accounting Group; Lee Sangyoon, in charge of Finance; [ Chong Joon-Ho ], in charge of Planning and Management; Kim Jong Hyun, in charge of Advanced Automotive Battery Planning and Management; [ Do Jin Ha ], in charge of Mobility and IT, Battery Planning Management; [ Youngsoo Kwon ], in charge of ESS Battery Planning Management; [ Chung Hyuksung ], in charge of Corporate Strategy; and [indiscernible] in charge of Market Intelligence. For your reference, the presentation for business performance strategy will be conducted with simultaneous interpretation. After which, we will have Q&A with consecutive interpretation. The presenting slide will be webcast live and also downloadable on the corporate website. In this conference call, I'm going to share our business performance of Q1 2023 and then CFO will give explanation on the U.S. Inflation Reduction Act or IRA and our corporate strategy followed by Q&A. Please note that the forward-looking statements included in the call are subject to change according to changes in future business environment and corporate strategies. First, let me explain our business performance. Regarding revenue in the first quarter of 2023 with our proactive response to solid demand in North America and stable operation of GM JV Phase 1, EV battery shipment increased and elevated metal prices in the second half of the previous year were reflected into the selling prices tested, revenue grew 2.5% Q-o-Q and 101% Y-o-Y to record KRW 8,747 billion, marking the fifth consecutive quarter of top line growth since the IPO. Regarding profitability in addition to economies of scale from shipment growth, our continuous effort for cost innovation by enhancing efficiency of major expenses and improving yield helped to achieve concrete results with operating profit of KRW 532.9 billion and OP margin of 6.1%. In the meantime, starting from this quarter, the estimated amount of tax credit from the U.S IRA was decided to be reflected into the operating profit on a quarterly basis, accordingly with an incremental amount of operating profit of KRW 100.3 billion. Operating profit in Q1 totaled KRW 633.2 billion and OP margin recorded 7.2%. In non-operating items, with about KRW 95 billion, while foreign currency-related profits such as profit from transactions of foreign currency denominated assets due to FX, non-operating profit in Q1 came in at around KRW 78 billion. Accordingly, net profit grew 104% Q-on-Q to record KRW 562 billion and net profit margin improved by 3.2 percentage points to reach 6.4%. Next, financial position. The total assets at the end of Q1 2023 increased by KRW 2,415 billion from the last year-end to stand at KRW 40,714 billion, with liability-to-equity ratio of 85% and net debt-to-equity ratio of 16%. Our cash flow in Q1 around KRW 1.1 trillion of EBITDA was generated, which was offset by CapEx, one-off labor cost payout and others to cause negative cash flow, thus the cash balance at the end of the first quarter declined by about KRW 1,157 billion compared with the last year-end to reach KRW 4,781 billion. CapEx spending in Q1 rose 50% Y-o-Y to record about KRW 1.8 trillion, mainly executed on investment for new capacity expansion in North America. With this, let me end my explanation on the business performance of Q1 and move on to the next part on the IRA strategy and expected effects by CFO, Lee Chang Sil.

[Interpreted] Shareholders, investors, analysts, this is CFO, Lee Chang Sil. In this earnings call, let me give you an update on the recent changes on the U.S. IRA and then go through our related corporate strategy. As you already know, the U.S. IRA, which was talked about much in the media is a comprehensive law aiming at addressing energy issues and climate change, cutting medical expenses and reducing inflation. Out of this, the subsidy and tax credit policy for EV and battery industries are closely linked to our business. So, I'm going to give you more color for the related details, which were recently released. First, EV subsidy is granted to those consumers who meet certain income requirements when they purchase an electric vehicle made in North America within a certain range of the manufacturer's adjusted retail price if the batteries contained in the EV fulfill each of the required conditions for battery component and critical minerals, a $3,750 subsidy, respectively, and up to $7,500 in total. According to a battery component requirements from 2023, over a half of the battery component, including electrode, separator, electrolyte, cell and module should be manufactured or assembled in North America and the applicable percentage of the values will rise gradually to 100% by 2029. Regarding critical minerals from this year as well, over 40% of critical minerals should be extracted or processed in the U.S. countries with the U.S. FTA or Japan [indiscernible] added to the list. The applicable percentage of the value too will increase to 80% by 2027. Here, critical minerals include most of the minerals used for battery manufacturing, such as cathode and anode, active materials, lithium, nickel, cobalt and manganese. When over 50% of the value-added of the critical minerals are generated from those countries, such critical minerals are considered qualifying for subsidy. But then there was an indication in the recent guidance that the 50% value-added condition may revised up from year 2025. One thing to note is that to boast of the EV subsidy requirements, another stream of banning any component or critical minerals from a foreign entity of concern will be attached. From 2024 for battery component and from 2025 for critical mineral, which will make the battery supply chain management, a very important factor that we need to take into consideration for our business management going forward. Moreover, there are further detail to be confirmed, such as like the case of Japan, if there will be any addition to the list of qualifying countries for critical mineral sourcing and which countries will consist of FEOC as defined by the IRA. So, through various channels, we will keep track of changes and come up with prompt actions. Next is on tax credit, which offers direct benefit to battery producers, including ourself. This policy is to grant tax credit of $35 per kilowatt hour for cell and $10 per kilowatt hour for module for those batteries, which are not just purchased, but also sold within the U.S. But then the guidance release at the end of March didn't include such details at funding limits and method of receiving tax credit, thus regarding potential update on the tax credit, we plan to monitor and react thoroughly. From now on, let me walk you through our strategy for the IRA policy. First, the EV subsidy is the benefit for the end consumers. But from the standpoint of the auto OEMs, the EV models eligible for the subsidy can have enhanced competitiveness, which in turn can accelerate the EV sales portion compared to that of the [ IAC ]. Therefore, to maximize the subsidy benefits for OEMs and EV consumers, it is of crucial importance to localize the production assembly of battery component in North America and satisfy the critical mineral sourcing requirements. In case of battery components, the portion of the product and assembly for electrode, cell and module is dominant, thus we can fulfill the subsidy requirement by producing supplying batteries in the U.S. and Canada. In the long run, locally produced volumes for separator and electrolyte should be secured given that we are planning to cooperate with our partners to pursue localization with speed. For battery critical minerals to source the minerals qualifying for the IRA requirement, we are closely discussing with our partners, also through equity investment and long-term supply agreement for upstream materials were on IRA to increase a portion of directly source minerals from the countries with the U.S. FTA and others. But as the definition of FEOC is not confirmed yet by applying timely and flexible measures in response to policy changes will strive to help our customers enhance their market competitiveness and also further solidify our position as well. Next, our strategy for tax credit. Again, this is the credit benefit directly granted for the company. As the company which has entered the U.S. a decade ago and non-production stand, based on our operational capability and know-how, we will be expanding capacity stably as planned and raise production efficiency on time to retain tax credit benefit. First, the estimated sales volume from our stand-alone capacity in Michigan and GM JV Phase 1 combined ranges from 15 gigawatt to 20 gigawatt hour this year. So, we are expected to be eligible for the tax credit amount corresponding to the projected sales volume. The total capacity expansion plan ongoing in the U.S. amounts to 200 gigawatt hour to 250 gigawatt hour weather as of now. Thus that as our production and sales volume go up gradually, the eligible credit amount will also grow in size. In particular, to solidify our leading portion in the U.S. market, we recently secured a new production base for EV cylindrical batteries in Arizona, thus strengthening capabilities to meet local customer needs. Also, with LFP-based ESS battery production in Arizona, we're now equipped with a foundation for new growth engine in the U.S. most of all by pulling in yield maturity and applying Smart Factory, we will be accelerating stabilizing operation in the newly established capacities. Lastly, by sharing our thoughts on what the expected changes from the IRA what mean to LG Energy Solution, let me end my presentation. First, with the adoption of the IRA, EV and ESS markets in North America are expected to grow further. Thus, it will be more important to establish local production capacities preemptively and prepare stable supply chain. Since the announcement of the policy, there are increasing requests from multiple customers in the U.S. for more volume supply and business cooperation. So, we expect such backlog upside momentum to continue down the road. In particular, LG Energy Solution has already secured sufficient local production capabilities compared to other peers along with stable supply chain. Adding to that, based on our strength from diversified product portfolio, we are securing a clear competitive advantage in North America. Furthermore, as tax credit will bring additional profit gain and liquidity improvement, we can look forward to enhancing financial soundness and equipping future investment resources. Investors, our endeavor for local capacity increase and diversify supply chain and product portfolio will become a catalyst for us to perform with the U.S. IRA. Nevertheless, we won't be complacent with positive external benefits and focus further on strengthening our fundamental competitiveness. Like I explained in the previous quarter based on the key 4 initiatives, first, reinforcing product competitiveness through the development of differentiated technologies by market segment; second, productivity and quality innovation through global rollout and Smart Factory, third, establishment of the SCM system in line with policy changes across the globe; and fourth, ensuring future readiness driven by next-gen battery technologies and new business such as Battery-as-a-Service and Energy-as-a-Service, we will also do our best to reinforce our core competitiveness so that we can capture a clear competitive advantage, firmly established regardless of external volatility. In closing, we would appreciate continuous interest and support from shareholders and analysts and LG Energy Solution will be attentive to your feedback at all times. Thank you.

[Interpreted] [Operator Instructions] The first question will be provided by Chang-hyeon Jeon from Daishin Securities.

[Interpreted] Thank you for the opportunity to ask questions. I am Chang-hyeon Jeon from Daishin Securities. I have 2 questions that I would like to ask you. The first question is about the content that you had mentioned about the IRA and also related to the AMPC. If you look at the AMPC credit, in terms of the overall budget that will be allocated to this area, the overall size, how these credits will be or subsidies will be paid out. And also the size of the subsidies is something that I believe has not been determined yet. But still in the first quarter, I do believe that you have reflected a certain amount in your operating profit. So, I would like to understand why you did so? And also what the overall amount that you are expecting for the full year to be with regards to the amount that you would reflect? And the second question I would like to ask about your performance in terms of your second quarter. Could you provide some guidance numbers about what your expectations would be and also for the full year of 2023? In addition to that, when you talk about your outlook for the future, if you could quote the numbers on a basis that would not include the AMPC credit, then that would be appreciated.

[Interpreted] This is [ Chang Jihun ] from Finance and Accounting. And maybe I can take your first question about the IRA-related AMPC. To answer your question about why we actually reflected this number in the first quarter numbers, it is that if you look at the actual legal regulations surrounding the IRA and the language, I do believe that it says that in the case that there are batteries manufactured and sold in the U.S. that any such batteries would be eligible from January 1, 2023. So as a result of that, this tax credit is also directly related to our main business activities. So as a result of that, based upon this, we have had discussions with related institutions and also tax accounting-related experts and have determined that we would start to reflect this amount from the first quarter in our operating profit line. However, that have been said, once the more detailed aspects and guidances of the tax credit are finalized, if there are any changes, and accordingly, we will make adjustments to our numbers at that time. If we look at the expected effects or impact that we believe will take place for the full year, as the CFO has mentioned during his presentation for the tax credits of 2023, based upon the amount that we believe will be produced and sold in the U.S. based upon that volume, the overall expectations is that, that will reach around 15 gigawatt to 20 gigawatt hours. So, this amount is not the target production capacity that we would have, but it would be the actual volume, we believe that we can sell and also complete the overall sales within the U.S. So, taking into consideration that there is a time lag between our production timing and the actual sales point timing, that is taken into consideration in these numbers. And it also includes battery modules only that were manufactured and sold in the U.S., which would be subject to the tax credit of $10 per kilowatt hour only.

[Interpreted] So, this is the CFO, Chang Sil Lee, maybe I can address your second question. Right now, if you look at the date today, it's April 26. And if we look at the overall market backdrop for the second quarter, it seems to be that for EV demand in Europe, it did seem to be a bit limited because of very competitive -- various competition-related issues. However, in the U.S., if you look at the current situation, it seems to be that overall demand is very strong. So, as a result of that, in the second quarter, we do believe that the overall top line will be similar to that of the first quarter. However, that have been said, if you look at the price of various key metals that go into our production like lithium, during the past 1 year or so, there has been a decline in those overall prices. Fortunately, for our customers, the majority share of those customers, we have completed the contracts based upon a cost pass-through basis for such metal prices. So, as a result of that, that decline in metals will not have an impact on our overall profitability. However, that have been said, on the top line, we do believe that there may be some impact because of the movement that we see in the price levels. If we look at it from a profitability standpoint, as we have mentioned before, there are various improvements that are taking place to try to improve our cost basis. And in addition to that, as we have mentioned before, for the metal prices, this will not have an impact on our overall margins. In addition to that, as our overall business size becomes larger, we do see that there is a need to more efficiently manage other cost items. So as a result of that, for key cost items such as logistics and also utilities, we are taking efforts to very systematically improve the overall efficiency of these items. And also, we are engaging upon various and continuous productivity improvements. So as a result of that, we do believe that on the operating profit level on a Q-o-Q basis, we will be able to enjoy an overall improvement as a result of that. To look at the outlook for 2023 as a whole, as we have mentioned during the previous conference call, in terms of the basic stance, I don't believe that there is a very big change. As mentioned before, in terms of the top line, of course, there will be some movement according to how metal prices move, but that would be only limited. And as of the current time, we do believe that on a Y-o-Y basis, we will be able to achieve a top line growth of around 30%. And this is considering the overall changes that we forecast on the metal price side. In terms of our overall profitability, as we have mentioned before, we do continue upon various initiatives, for example, improving our overall material costs by engaging upon supply chain innovation. Also for the key cost items, we will continue to increase the efficiency of those items. And also, we will embark upon various efforts to innovate and improve our overall productivity, so that for the newly installed capacity that we have, we can stabilize that early on. And if we look at the overall outlook, based upon not including the IRA tax credits that we do believe will be forthcoming, at the end of the day, we do think that at the operating profit and margin basis, we will be able to achieve a mid- to high single-digit level. That have been said, we will not remain complacent and we will continue to put in all efforts to try to maximize our performance as much as possible. Thank you.

[Interpreted] The following question will be presented by Woo-Hyung Cho from HSBC Securities.

[Interpreted] Yes. Thank you for the opportunity to ask questions. This is Cho Woo-Hyung from HSBC. There are 2 questions that I would like to ask you. One would be about your margins and the second would be about your intentions for cylindrical type batteries going forward. In terms of your margins, the first question that I would like to ask is something that the CFO did mention during his answers before, which is that metal prices have been falling dramatically. And as a result of that, you did mention that because of the pass-through mechanism that you have with your customers that the overall impact on your profitability from that would be limited. However, if we look at cost items outside of metals, are there other factors that may have an overall impact on your profitability? And if so, what would they be? The second question that I would like to ask you is about your cylindrical battery intentions going forward. You did announce that you would have a capacity to be built out in U.S., Arizona and that you would be making an investment in that area. Could you provide a general overview about that project? Also maybe identify some potential customers that you would have for that site? And also in terms of your 4680 cylindrical batteries, in addition to the mother line that you have in Korea, do you have any intention to build out capacity further?

[Interpreted] So, this is Chong Jo from Planning and Management, and maybe I can address your first question. As you have mentioned, if you look at the lithium prices recently versus the peak levels, it has dropped by more than 50%. And in addition to that, for other metals, including lithium and led by lithium, there continues to be a general decline in the overall price levels. Most of the contracts that we have in [ Edge PON ] as of the current time, as mentioned before, do have a pass-through clause for metal prices and other key raw materials that we use for our production. So, as a result of that, because there has been a price decline in metal prices recently from the second quarter, we do believe that there will be some of an impact on the top line that we see from that factor. And in addition to that, if we take into consideration the lagging effect or the time lag that we actually see between the fall in the raw material prices versus the time that, that is actually passed on and reflected in our revenue, we do think that the full effect of that is something that we will expect to take place in more largely in the second half of the year. However, that have been said, the basic and fundamental purpose of us having a pass-through agreement for metal prices is because we want to be able to secure our overall profitability at a stable level. So, as a result of that, because there is the pass-through, we do think that there is the risk of our overall top line changing as a result of that. At the end of the day, if we look at our overall profitability, the overall impact will be limited. [Interpreted] So this is Do Jin Ha from the Mobility and IT Battery Planning and Management department. Maybe I can take your second question. First, maybe to give you a general overview about the investments that we are planning to make in Arizona related to cylindrical EVs, EV batteries. If you look at the overall CapEx that this represents, it's around KRW 4.2 trillion. And the purpose of this investment is to make sure that we secure a competitive position within the North American market, which is growing very rapidly. So, as a result of that, the construction will start -- has started in March of this year and it will continue for 2 years. And we actually believe that the overall mass production will gradually start from the second quarter of 2025. The overall capacity that is expected at this site would be 27 gigawatt hours. And for the key customers, it would be North American EV OEMs, including various EV start-ups. To address the second part of your question about the new Form Factor 4680. Right now, for the 4680 cylindrical products, we do have a dedicated organization in place to ensure that we can preemptively secure the technology that is required and also successfully mass produce these products. So right now, the mother line in Huchang is something that we are actually preparing. And we do have a pilot line in place that we have prepared and are utilizing as of the current time. So, for the actual mass production line setup, we are planning to complete this by the end of 2023. And once -- and we are going to start to verify our capabilities to enter into mass production of this product. So, once we do believe that we have secured the capabilities on a stable basis to do so, then we do believe that we can start to engage upon various discussions with supplying to various potential customers. So, as a result of that, in terms of our customers and the sites in which we will be building capacity, as these become determined and finalized, we will make sure to communicate with you. Thank you.

[Interpreted] The following question will be presented by Dong Jin Kang from Hyundai Motor Securities.

[Interpreted] Thank you for the opportunity to ask questions. There are 2 questions that I would like to ask you and both are related to LFP batteries. The first is that I do believe that it is known that you are developing LFP batteries for EV cars. In terms of your EV car-related LFP batteries, I would like to know what your plans are for the future? For example, how are you planning to roll out this overall business? When do you think it could actually start? Who would be the potential customers that you would supply to? If you could provide some information on that, that would be appreciated. The second question that I would like to ask you is about your investment into ESS-related LFP batteries that you are planning to make in Arizona. For that capacity, if you look at the CapEx required on a per gigawatt hour basis, it seems to be higher than other battery types. So, the question that I would like to ask you is, how are you planning to secure the profitability of this capacity? And in addition to that, do you actually believe that it can be competitive going forward?

[Interpreted] So, maybe I can address your first question. This is Kim Jong Hyun from the Advanced Automotive Battery Planning and Management team. So, about our intentions about developing an LFP for EVs. If you look at LFP for EVs right now, mainly driven by the Chinese battery producers and based upon the cost competitiveness that this LFP can provide -- LFP chemistry can provide, it is something that has been adopted for more of the affordable vehicles within the market. Some of the OEM customers that we have also have needs and would like to actually combine a pouch-type battery and also the benefits that LFP has together. So, as a result of that, we have received inquiries about the possibility of supplying and also developing LFP batteries for EV. In light of the overall possibility that the LFP market will grow going forward and also in light of the various customer demand and needs that we see, we are opening our overall options within this area in very areas, and we are currently reviewing entering into the EV LFP market. Right now, if you look at the type of LFP that we are trying to develop and focus on, the first priority right now would be to apply LFP to ESS batteries. And for future EV LFP batteries, we are looking into developing high-performance products and possibly applying that and also reviewing the possibility of taking that further. In addition to LFP, we're are also looking at other various technologies that would enable us to secure cost competitiveness, including high-voltage, mid-nickel NCM batteries. So, as a result of that, we will continue to develop various mid- to low-end solution products so that we continuously can expand our business in these areas. Thank you.

[Interpreted] So, maybe I can take your second question about ESS LFP batteries. This is Youngsoo Kwon from the ESS Battery Planning and Management team. So, to address the first part of your question about CapEx and whether or not we would be able to secure the profitability that is required, it is true that for LFP cells versus that of NCM cells, the energy density is around 20% lower. So, as a result of that, if you just simply divide the CapEx by overall capacity, then LFP CapEx per gigawatt hour does come out to be higher. However, though the unit CapEx required for LFP is higher than that of NCM, on a relative basis, the raw materials are at a lower level. And also because of the self-stability that LFP provides, if you look at the overall product structure in itself, it's a more simplified structure. So, as a result of that, you are able to secure cost competitiveness that is required. In addition to that, we will be producing locally in the U.S., which means that we will be able to save on tariffs and also various logistics costs. And we are expecting that we would be eligible for IRA tax credit. So, as a result of that, all in all, we do think that we will be able to secure the margins and also a sufficient level of profitability that is required for this business. To talk about our competitiveness in this market, if you look at the overall size and the growth potential of the market, of course, we do think that North America will be one of the main areas. So, that is why we do want to have a local production base in this area so that we can satisfy the various localization needs that our customers have. And also, we do believe that we will be able to secure our overall ASP competitiveness, while providing a differentiated product versus the competitors within this market. In addition, we are planning to engage upon our long-term supply agreement with large volume and very key customers and also build out a very mid- to long-term cooperation and partnership so that we can build out our overall customer portfolio by securing a pipeline of customer product projects early on. Thank you.

[Interpreted] Yes. I have one question, and that would be related to your Chinese competitors recently are showing intentions of entering into the U.S. market. So, from the company's perspective, do you believe that this poses a risk in terms of the overall competitive landscape or competitive dynamics? And if so, how are you planning to deal with this risk?

[Interpreted] So this is the CFO, Chang Sil Lee and maybe I can address your question. Thank you for a very good question. If you look at some of the recent reports, it does seem to be that some of the Chinese battery manufacturers are trying to enter into in an indirect manner into the U.S. market such as the CATL-Ford cooperation. And if you look at these Chinese companies that want to enter into the U.S. market, because it is very difficult and challenging to do so alone, it does seem to be that they are trying to explore various avenues that would be available for them. So, how they actually approach this issue is something that we are continuously monitoring and also preparing to deal with accordingly. However, that have been said, if you look at the recent global economic global backdrop and the overall market, also, the spirit of the IRA that has been adopted in the U.S., I do believe that on a general basis, it does seem to be that towards Chinese companies, at the U.S. government level, there is a bit of opposition towards such entries. So, as a result of that, I do believe that it could be very difficult for them to make more inroads and more progress. That have been said, if you look at the situation more closely, just investing into the market in itself will not be enough to engage upon and actually fully operate the capacity, you do need to have experience doing mass production overseas. And also there is additional cost and also time that is required to build out a supply chain within the market. So, as a result of that, we also believe that there are various risks related to that. In addition to that, the market in China and competing there alone versus competing on a global market is also very different. So, even if there are decisions to -- made to enter into the U.S. market, I do believe that for the Chinese players to actually build out a presence and also stabilize that operation will take a significant period of time. On the other hand, if you look at our position in the U.S., we do already have a very strong partnership, a strategic partnership with multiple OEMs, and we not only have been able to secure a lot of the demand already, but versus the competition, we have a longer history of presence in the U.S. And as a result of that, we have a longer history of stably producing and operating capacity in this market. So, as a result of that, what is very -- most important is that based upon this stable operational basis that we continuously try to deal with the situation accordingly and also prepare in advance. In particular, if you look at the IRA, as mentioned before, it does require that there is a local supply chain in place. And also in the designation of the FEOC, we do think that it is highly likely that China will be included in that category. So, taking these policy changes into consideration, we do think that the overall business backdrop is on a relative basis, more favorable for our position. However, that have been said, we will not be complacent. And as we have mentioned before, we will continue to strive to try to compete and strengthen our overall competitiveness on the fundamental product level, also secure our cost competitiveness based upon a very stable supply chain, continue to build very strong partnerships with our OEM partners and also build out and complete our smart factories so that we can innovate in terms of our overall productivity levels and also quality. So all in all, as a result of that, we do want to continue to increase our market share in the North American market. So, thank you. So, due to time, I do believe that we have time for one last question. So, please go ahead.

[Interpreted] The last question will be presented by YongJin Jung from Shinhan Securities.

[Interpreted] So, thank you very much for the opportunity to ask questions. There are 2 questions that I would like to ask you. And because you have talked a lot in detail during this call about the U.S. market, the question that I would first like to ask you is actually about the European market. If you look at the critical raw materials as this is something that has been announced. So, as a result of that, even if it's at a very high level, what impact do you expect from this regulation? And also, in terms of how you're planning to deal with it, that is something that I would like to ask you. The second is this is probably a question that we face every day. And that is that if you look at the OEMs within the EV market, right now, there is very fierce price competition that's taking place. So, apart from the formula that you have embedded into your supply contracts, is there any pressure from the OEM customer side to decrease your prices? So, if so, if you could please explain that situation, that would be appreciated.

[Interpreted] So, I would like to address your first question about the CRMA. This is Chung Hyuksung from Corporate Strategy. For the CRMA, this is a legislation that has been announced to actually promote the clean industry to develop within Europe and also to deal with the changes or impact that may be coming from the U.S. IRA. So, as a result of that, it does also include content to stabilize the battery value chain supply and also to secure and enable producers to have a stable secure sourcing of EV metals that are required. So, as a result of that, the CRMA was announced last March, together with the Net Zero Industry Act. And as of now, only a draft is available. So, based upon the current draft that is available in terms of the actual subsidy size, how it would be paid out and what type of qualifications would be required, the details have yet to come. And we do believe that the overall process does require that the EU Council or EU commission first approves it, the legislation needs to be finalized and then it would go into effect. So, as a result of that, we do believe that around 1 to 2 more years will be required for this full process to take place. To talk about our stance on how we want to deal with this issue. As you are aware, we do have a large-scale mass production capacity in Poland. And as a result of that, we continue to localize our overall value chain for a battery material and also various parts. In the case of metal, we are also looking at a wide variety of alternatives, for example, making local equity investments or engaging upon long-term supply agreements to stabilize the supply chain in that area. And also in the area of battery recycling, we also are in discussions with various Europe local specialty companies within this area. So, as a result of that, the ultimate goal is to have a closed-loop cycle within Europe that would enable us to be present in securing metal, also, the overall battery production process, the scrap metal or the waste battery recycling. So, the full life cycle of all battery production. And if we are able to do so, we believe that there will not be any issues in us satisfying the requirements under the CRMA. Once more details about the actual CRMA are available, of course, we will monitor that situation. And also in terms of the localization of our value chain in Europe, this is something that will continue to be ongoing. And we do think that as we think -- as we take things step by step, we will be able to deal with things accordingly.

[Interpreted] So, maybe I can address your second question about whether there has been any requests from our OEM clients to decrease our overall price levels. This is Kim Jong Hyun from the Advanced Auto Battery Planning and Management team. So, in the beginning of 2023, it is true that there were various concerns about demand for EV cars and also the possibility of subsidies being abolished. So, as a result of that, some of the OEM manufacturers did embark upon price decreases for their vehicles. However, if you look at our supply agreements with our OEM customers, according to the contract structure, the actual supply price for our batteries is not impacted by the end vehicle price. So, as a result of that, even if the vehicle prices are decreased, the risk for our supply prices being impacted is very limited. However, that have been said, separate from that issue, we will continue to embark upon various cost innovation efforts to ensure that we are able to secure competitiveness in this area and that we are prepared for the future. Thank you.

[Interpreted] So, thank you very much. With this, we would like to wrap up LG Energy Solution first quarter 2023 earnings conference call. Once again, thank you for your participation today. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]