Categories: BusinessLatest

South Korea’s LG Chem Shares Plummet Due to GM Electric Vehicle Recall

LG Chem Ltd shares slid nearly 10% after General Motors said it would recall about 73,000 Chevrolet Bolt electric cars that use the South Korean firm’s batteries, months after a similar recall by Hyundai Motor.

The Detroit carmaker said on Friday its expanded recall of Bolt electric vehicles (EVs) – to address fire risks brought about by what it called battery manufacturing defects – would cost $1 billion and it would seek reimbursement from LG.

GM also said it would indefinitely halt sales of the EVs. The latest recall covers vehicles beginning model year 2019.

Shares of LG Electronics Inc, which assembles cells manufactured by LG Chem battery unit LG Energy Solution into battery modules, dropped as much as 5.8% in morning trade. The broader market KOSPI was trading up 1% as of 0121 GMT.

LG Chem said on Saturday it was working to ensure that the recall measures were carried out smoothly.

 

“The reserves and ratio of cost to the recall will be decided depending on the result of the joint investigation looking into the root cause, currently being held by GM, LG Electronics and LG Energy Solution,” LG Chem said in a statement.

The company, which is preparing an initial public offering (IPO) for LGES, saw some $5 billion shaved off its market value. The stock was set for its biggest intraday percentage loss since March 2020.

“Market expected that LGES would launch its IPO in September, but with GM’s expanded recall, LGES IPO is likely to be delayed for a month or two, because the company needs to reflect the recall cost before finalising the IPO paperwork,” said analyst Cho Hyun-ryul at Samsung Securities.

“If LG does not manage to solve its battery defect issues, it will eventually hit its future orders from carmakers. If more fire risks/accidents arise, LG’s position in the global EV market would be weakened,” Cho said.

LG Chem, which also counts Tesla Inc (TSLA.O) and Volkswagen AG (VOWG_p.DE) as customers, got 815 billion won ($695 million)or 40% of its operating profit from the battery business – including EV batteries – in the April-June quarter. Last year, LGES reported an operating loss.

GM’s expanded Bolt recall comes six months after Hyundai said it would recall some 82,000 EVs globally over fire risks, including the Kona EV, with an estimated cost of about 1 trillion won ($851.90 million).

Neither Hyundai nor LG have disclosed how the two companies will split the recall cost but analysts estimate that LG will assume about 60% of expenses to replace battery systems.

Earlier this month, LG Electronics cut its second-quarter operating profit by more than a fifth to reflect costs for the GM recalls.

 

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