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Drop In Shares Of LG Chem Over GM’s EV Recalls And Battery-Fire Probe

Drop In Shares Of LG Chem Over GM’s EV Recalls And Battery-Fire Probe
Despite assurances from the United States based auto giant General Motors of its intention of continuing to maintain a relationship with South Korean battery maker LG Chem, investors of the later company were not convinced, resulting in shares of the company falling to a nine month low on Friday.
Investors are worried about the recall of electric vehicles (EV) by GM that has battery sets supplied by the South Korean firm. GM has said that it would seek compensation from LG Chem for replacing the batteries in the recalled vehicles. The recall was made in two phases – the first in July this year and then earlier this month, and was done over concerns of threats of fire from the battery sets that power the vehicles.
Shares of LG Chem Ltd dropped by as much as 3.9 per cent which was its lowest since November last year and analysts believed that the stocks of the company were on track to slide further to their worst week since early last year with a 14 per cent plunge.
According to a report published by Bloomberg News on Thursday, General Motors Co's CEO Mary Barra signaled that the auto company wants to continue its relationship with LG Energy Solution, which is at the centre of the vehicle recall which is has been pitted to cost GM about $1.8 billion in total.
In order to secure a leading position in the transition to EVs, the automaker had "multiple pathways, she also said, according to the report.
Last week, its earlier recall of Bolt EVs, which was done in July, was expanded by GM, over the fire threat which the auto maker described as being a result of battery manufacturing defects.
The cause of manufacturing defects is stil being investigated by GM, LG Energy Solutions and LG Electronics Inc.
According to analysts, the decline in the share prices of LG Chem was a result of uncertainties created by on-going investigation and media reports with widespread speculations about the causes of the battery fire.
The announcement of building a second battery cell manufacturing plant in Spring Hill, Tennessee was announced in April this year jointly by GM and LG Energy Solutions. The two companies are currently building their first joint venture battery making plant in Lordstown, Ohio.
GM had initially recalled 69,000 Bolt EVs for fire risks in July this year while the expansion of the recall earlier this month took the total number of recalled vehicles to 142,000 vehicles. GM anticipates that replacing the battery sets of all of the recalled vehicles will cost the company about $1.8 billion.
Since the latest recall, GM has also announced a temporary halt to the sale of its Bolt EVs.
Shares of LG Electronics, which assembles LGES cells into battery modules and packs, were trading down 0.7 per cent, compared to the broader market's 0.3 per cent rise.

Christopher J. Mitchell

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