LG Chem of S. Korea shares immersion in the withdrawal of GM electric vehicles

SEOUL, Aug 23 (Reuters) – Shares of LG Chem Ltd (051910.KS) fell nearly 10% after General Motors Co (GM.N) said it would recall about 73,000 Chevrolet Bolt electric cars using batteries of the South Korean firm, months later a similar record from Hyundai Motor Co (005380.KS).

The Detroit-based vehicle maker said Friday that its broader withdrawal of Bolt (EV) electric vehicles, to deal with the risks of fire caused by what it called battery manufacturing defects, would cost $ 1 billion and demand reimbursement. of LG. Read more

GM also said it would halt sales of electric vehicles indefinitely. The last record refers to vehicles starting the 2019 model.

Shares of LG Electronics Inc (066570.KS), which brings together cells manufactured by the LG Chem LG Energy Solution (LGES) battery into battery modules, fell as much as 5.8% in the morning trade. The broader KOSPI market (.KS11) was trading at 1% from 0121 GMT.

LG Chem said on Saturday it was working to ensure the withdrawal measures were carried out smoothly.

“Reservations and the cost-to-withdrawal ratio will be decided based on the outcome of the joint investigation exploring the root cause, which GM, LG Electronics and LG Energy Solution currently have,” LG Chem said in a statement.

The company, which is preparing an initial public offering (IPO) for LGES, saw its market value plummeted by about $ 5 billion. The shares were set for their largest intraday percentage loss since March 2020.

“The market expected LGES to launch its IPO in September, but with GM’s expanded recovery, it is likely that LGES’s IPO will be delayed a month or two, because the company needs to reflect the cost of withdrawal before finalizing the IPO documentation, ”analyst Cho Hyun-ryul told Samsung Securities.

“If LG fails to resolve issues related to battery defects, it will eventually reach its future orders from vehicle manufacturers. If more risks / accidents occur, LG’s position in the global electric vehicle market will be it would weaken, ”Cho said.

LG Chem, which also has Tesla Inc. (TSLA.O) and Volkswagen AG (VOWG_p.DE) as customers, earned 815 billion won ($ 695 million) or 40% of its operating profit from the batteries (including EV batteries) April-June quarter. Last year, LGES recorded an operating loss.

GM’s extended Bolt withdrawal comes six months after Hyundai said it would recall about 82,000 electric vehicles worldwide for fire hazards, including the Kona EV, at an estimated cost of approximately 1 trillion won (851.90 million of dollars). Read more

Neither Hyundai nor LG have disclosed how the two companies will split the withdrawal cost, but analysts estimate that LG will bear approximately 60% of the costs to replace the battery systems.

Earlier this month, LG Electronics cut its second-quarter operating profit by more than a fifth to reflect the costs of GM’s recoveries. Read more

(1 $ = 1,172.5900 earned)

Reports of Heekyong Yang and Jihoon Lee; Edited by Kenneth Maxwell and Christopher Cushing

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