LG Chem’s shares tumble over 10 pct on GM EV recall

Shares of South Korean chemical firm LG Chem Ltd. plunged more than 10 percent on the Seoul bourse Monday, following American automaker General Motors’ decision to additionally recall Bolt electric vehicles equipped with its subsidiary’s batteries over fire risks.

Shares of LG Chem, which wholly owns battery maker LG Energy Solution Ltd., tumbled 11.14 percent to 798,000 won after GM said Friday it will recall about 73,000 Bolt EVs from model years 2019 through 2022, which is expected to cost about US$1 billion.

It is on top of about 69,000 Bolt EVs from 2017-2019 model years included in the previous recall in July over the same issue, which cost about US$800 million.

GM said batteries supplied to Bolt EVs had two manufacturing defects in rare circumstances, saying it will pursue reimbursement commitments from LG after further investigations.

LG Electronics has supplied GM with battery modules that are made with battery cells from LG Energy Solution.

LG said it will decide reserves and ratio of recall cost of its subsidiaries depending on the result of the joint investigation.

As a result, shares of LG Electronics sank 4.1 percent to 140,500 won.

Earlier this month, LG Electronics set aside 234.6 billion won as a provision expense for the Bolt EV recall, while LG Chem earmarked 91 billion won.

In February, Hyundai recalled 82,000 Kona EVs equipped with LG Energy’s batteries over fire risks, which was estimated to be about 1 trillion won.

In early March, LG Chem corrected its 2020 operating profit from 2.3 trillion won to 1.8 trillion won, reflecting 555 billion won in recall costs for Kona EVs.

The latest recalls are a blow to LG Energy Solution, the world’s No. 2 battery supplier, which is preparing to go public on the Seoul bourse later this year, and pose a major test for its partnership with GM’s EV transition.

LG Energy operates a battery factory in Michigan, while its joint venture with GM, Ultium Cells, has been building a facility in Ohio, with plans to open another in Tennessee.

Market watchers expected battery quality issues to squeeze LG Energy’s margins in the short term, but the high technology standard for EV batteries could make it hard for newcomers to enter the booming industry and pave the way for its growth in the long term.

“Investors seem concerned that LG could face similar risks in the future, which could hurt its market share and erode the margins of its battery business,” Park Yeon-joo, an analyst at Mirae Asset Securities, said. “Although LG Chem’s shares may fluctuate in the short term, it is going through growing pains for sustainable growth.”