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GM Electric Car Recall Pushes Down South Korea's LG Chem Shares


08/23/2021


GM Electric Car Recall Pushes Down South Korea's LG Chem Shares
Following the announcement of recalling of an additional 73,000 Chevrolet Bolt cars over fire threats from the battery packs used in them that were made by South Korea’s LG Chem Ltd, which will be replaced with new sets on Friday in the United States, stock prices of the  South Korean battery maker dipped by almost 10 per cent on Monday, the first trading day after the announcement by the American car maker.
 
A similar recall for their electric cars, whose battery packs were also made by LG Chem, was made a few months ago by Hyundai Motor Co.
 
The American car maker extended its earlier recalls of the Bolt electric vehicles because of the manufacturing defects in the battery packs powering the vehicles that could result in fires. The company said that the cost of recalling and replacing the faulty batteries for the company would be about $1 billion and it would seek reimbursement for the amount from LG Chem.
 
Vehicles beginning for the model year 2019 were included in the recall, said the US auto maker, and added that sales of its Bolt electric cars would be halted indefinitely.
 
LG Chem said it was working to ensure a smooth recall.
 
More than $5 billion was lost in Monday’s share price decline for LG Chem, which is also getting ready for launching an initial public offering (IPO) for its battery unit LG Energy Solution (LGES), and the stock is set to make its largest intraday 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 finalizing the IPO paperwork," said Samsung Securities analyst Cho Hyun-ryul.
 
In July, the number of cars included in the initial recall by GM was 69,000 Bolt cars. The latest expansion in that recall was decided upon after a week since an incident of fire involving a Volkswagen AG ID.3 EV that was fitted with an LGES battery pack.
 
The risk of fire originating from the LGES battery pack forced Hyundai to recall 82,000 of its electric cars six months ago. The estimated cost of the recall was said to be about 1 trillion won ($851.90 million).
 
Pouch-type batteries and not the cylindrical batteries supplied to LGES customers including Tesla Inc were involved in both the recall of cars by GM and Hyundai.
 
Defects in battery cells made at an LGES factory in China were discovered in a joint investigation with LGES and Hyundai, said South Korea's transport ministry in February. That investigation is currently ongoing.
 
In the previous recall by Hyundai, how the company along with LGES plans to divide the cost of the recall was not disclosed by either LGES or Hyundai. However, according to estimates of analysts, about 60 per cent of the costs are likely to be borne by LGES.
 
A vast majority of the earnings of LG Group is from batteries. Am operating profit of 40 per cent was earned by LG Chem – which included batteries for electric vehicles, in the quarter ending June. The company scaled down its forecast operating profit for the second quarter by more than a fifth which accounted for the costs to the company for the GM recall.
 
(Source:www.foxbusiness.com)


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