LG Chem’s share fall after GM’s expands Chevrolet Bolt recall

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

Earlier last week, on Friday GM expanded its recall of Bolt electric vehicles (EVs) citing a fire risk from what it called battery manufacturing defects; it said, the recall would cost it $1 billion and that it would seek reimbursement from LG.

The recall covers vehicles beginning model year 2019 and that it would indefinitely halt sales of Bolt.

In a statement LG Chem said, it was working to ensure a smooth recall.

“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 Cho Hyun-ryul, an analysts at Samsung Securities.

In July this year, GM had initially recalled 69,000 Bolt EVs. It then expanded the recall after a fire incident involving a Volkswagen AG ID.3 EV carrying an LGES battery.

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

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

Incidentally, batteries contribute significantly to LG Group’s earnings.

During the April to June quarter, LG Chem earned 40% of operating profit from batteries.

LG Electronics Inc has cut its second-quarter operating profit by more than a fifth reflecting costs related to GM’s recall.

($1 = 1,172.5900 won)

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