LG Energy Solution scraps 3.9 trillion won deal as partner exits battery market

LG Energy Solution (LGES) has officially terminated a long-term battery supply contract worth 3.92 trillion won ($2.7 billion) after its client, U.S.-based Freudenberg Battery Power Systems (FBPS), announced a complete withdrawal from the battery industry.

The cancellation, disclosed in a regulatory filing today, marks a turbulent end to 2025 for the South Korean battery giant. It comes just nine days after Ford Motor Company cancelled a massive 9.6 trillion won ($6.5 billion) contract for batteries destined for the European market, signaling a deepening “chasm” in global electric vehicle (EV) demand.

The Freudenberg Exit

The termination was reached by mutual agreement. According to the filing, Freudenberg decided to shut down its battery business entirely—including the closure of its Michigan sites in Auburn Hills and Midland—meaning it no longer has a use for the battery modules LGES was contracted to supply through 2031.

While the loss of the contract strikes a blow to LGES’s future order book, the company emphasized that the immediate financial damage is contained. “Because we had not yet executed specific facility investments or customized R&D expenditures for the Freudenberg project, there are no significant impairment charges or sunk costs,” an LGES spokesperson noted.

13.5 Trillion Won in Backlog Evaporates

The combined impact of the Freudenberg and Ford cancellations has wiped approximately 13.5 trillion won ($9.3 billion) from LGES’s cumulative order backlog in less than two weeks. This figure represents more than half of the company’s 2024 annual revenue of 25.6 trillion won.

However, analysts note a critical distinction between “backlog” and “revenue.” The cancelled contracts were multi-year agreements. While future growth projections face headwinds, current operational stability remains largely unaffected as these orders were not scheduled for immediate delivery.

Strategic Pivot: The Honda Deal

In response to the slowing EV market, LGES is aggressively restructuring its portfolio to become “asset-light.” On December 24, the company announced a strategic deal to transfer its joint venture factory building and assets in Ohio to Honda Development and Manufacturing of America for $2.86 billion.

This move allows Honda to respond more flexibly to market trends—specifically the resurgence of hybrid vehicles—while allowing LGES to recover capital and reduce the financial burden of maintaining fixed assets during a market downturn.

Summary

LG Energy Solution (LGES) has mutually terminated a 3.9 trillion won supply contract with U.S.-based Freudenberg Battery Power Systems following the client’s exit from the battery industry. This follows a 9.6 trillion won cancellation by Ford earlier this month, totaling 13.5 trillion won in lost future backlog. LGES is mitigating these losses by selling Ohio factory assets to Honda for $2.86 billion to improve liquidity and pivot toward a more flexible “asset-light” strategy.

Frequently Asked Questions (FAQs)

Q1: Did LG Energy Solution lose money because of this cancellation?

They lost potential future revenue, but no immediate cash. Because LGES had not yet built dedicated factory lines for Freudenberg, there are no “sunk costs” or write-downs required.

Q2: Why did Freudenberg cancel the deal?

Freudenberg is exiting the battery manufacturing sector entirely. They are closing their production sites in Michigan and no longer require the battery modules LGES was set to supply.

Q3: How big is the total loss from recent cancellations?

In December 2025 alone, LGES lost two major contracts (Ford and Freudenberg) totaling 13.5 trillion won. This represents about 52% of their total 2024 annual sales.

Q4: Why is LGES selling its Ohio factory assets to Honda?

It is a strategic move to recover capital. By selling the building assets for $2.86 billion, LGES reduces its fixed costs while allowing Honda to use the facility for both EVs and the currently popular hybrid models.

Q5: Is the company in financial trouble?

No. While growth targets have been lowered, LGES remains profitable and maintains a strong cash position. The company is using this period to “streamline” its customer base and focus on high-stability orders.