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SKorea’s LG Chem Shares Dive on GM Electric Car Recall

Shares plunge nearly 10% after General Motors said it would recall more cars that use the firm’s batteries due to fire risk from alleged ‘defects’, and seek $1 billion from LG Chem


LG Chem plans to set up a joint venture with China's Tianjin Science and Technology to make EV batteries.
Shin Hak-cheol, chief executive of LG Chem, said the JV would focus on manufacturing NCMA (nickel, cobalt, manganese, aluminium) cathode materials for next-generation EV batteries. File photo: Reuters.

 

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

GM on Friday expanded its recall of Bolt electric vehicles (EVs) due to fire risk from what it called battery manufacturing defects, saying the recall would cost $1 billion and that it would seek reimbursement from LG.

The US automaker said the recall covers vehicles beginning model year 2019 and that it would indefinitely halt Bolt sales. LG Chem said it was working to ensure a smooth recall.

LG Chem, which is preparing an initial public offering (IPO) for battery unit LG Energy Solution (LGES), lost $5 billion in market value with its stock on track for its biggest intra-day percentage loss since March 2020.

“The 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 Samsung Securities analyst Cho Hyun-ryul.

GM initially recalled 69,000 Bolt cars in July. Its expanded recall comes about a week after a fire involving a Volkswagen AG ID.3 EV carrying an LGES battery.

Six months earlier, Hyundai recalled 82,000 EVs over LGES battery fire risk at an estimated cost of about 1 trillion won ($851.90 million).

Both GM’s and Hyundai’s recalls involve pouch-type batteries, rather than cylindrical batteries supplied to LGES customers including Tesla Inc.

In February, South Korea’s transport ministry said a joint investigation with LGES and Hyundai found defects in battery cells at an LGES factory in China. The investigation is ongoing.

Neither LGES nor Hyundai have disclosed how they plan to split recall costs, though analysts expect LGES to assume 60%.

Batteries are a massive component of LG Group earnings. LG Chem earned 40% of operating profit from batteries – including EV batteries – in April-June. Earlier this month, LG Electronics cut its second-quarter operating profit by more than a fifth to reflect GM recall costs.

Shares of LG Electronics, which assembles LGES cells into battery modules, fell as much as 5.8% on Monday. That compared with the local benchmark which was up 1.5% around noon.

• Reuters and Jim Pollard

 

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Jim Pollard

Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd papers in Sydney, Perth, London and Melbourne before travelling through SE Asia in the late 90s. He was a senior editor at The Nation for 17+ years and has a family in Bangkok.

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