LG Chem shares slide on GM electric car recall

General Motors Co said its expanded recall of Bolt electric vehicles would cost $1 billion

Shares of LG Chem Ltd dropped nearly 10% after General Motors Co said it would recall nearly 73,000 Chevrolet Bolt electric cars that use the firm’s batteries.

The Detroit carmaker said on Friday its expanded recall of Bolt electric vehicles (EVs) – to address fire risks brought about by what it called battery manufacturing defects – would cost $1 billion and it would seek reimbursement from LG.

GM also said it would indefinitely halt sales of the EVs. The latest recall covers vehicles beginning model year 2019.

Shares of LG Electronics Inc, which assembles cells manufactured by LG Chem battery unit LG Energy Solution (LGES) into battery modules, declined 5.8% in morning trade. The broader market KOSPI was trading up 1% as of 0121 GMT.

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

The reserves and ratio of cost to the recall will be decided depending on the result of the joint investigation looking into the root cause, currently being held by GM, LG Electronics and LG Energy Solution, LG Chem said in a statement.

The company, which is preparing an initial public offering (IPO) for LGES, saw nearly $5 billion wiped off its market value. The stock was set for its biggest intraday percentage loss since March 2020.

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 analyst Cho Hyun-ryul at Samsung Securities.

If LG does not manage to solve its battery defect issues, it will eventually hit its future orders from carmakers. If more fire risks/accidents arise, LG’s position in the global EV market would be weakened, Cho said.

LG Chem got 815 billion won ($695 million) or 40% of its operating profit from the battery business – including EV batteries – in the April-June quarter. LGES reported an operating loss last year.