Battery Maker LG Chem Loses $6 Billion in Market Value After GM Announces Chevy Bolt EV Recall

author: FutureCar Staff    

Shares of South Korean battery maker LG Chem fell by 11% on Monday on the first day of trading after automaker General Motors announced its expanding the recall of the Chevy Bolt EV due to the risk of battery fires. LG Chem is GM's battery partner and supplied the batteries used in the Chevy Bolt EV. 

LG Chem's falling stock price erased $6 billion in market value.

GM announced last Friday it was voluntarily expanding its Chevrolet Bolt EV battery recall to cover the remaining 2019 model not included in the first recall in November of last year, as well as all 2020-2022 model year vehicles, including the new Bolt EUV.

The batteries for the Bolt EV models were supplied by LG Chem.

The new recall includes 9,335 2019 model year Bolt EVs and 63,683 2020–2022 model year Chevrolet Bolt EVs and EUVs, including 52,403 sold in the U.S.

GM said it will replace defective battery modules in Chevrolet Bolt EVs and EUVs with new modules at an additional cost of approximately $1 billion that it expects LG to pay for. The $1 billion cost is on top of the $800 million GM said it will cost for the original Bolt recall in Nov 2020. 

In a press release last Friday, the automaker said its "pursuing commitments from LG for reimbursement of this field action."

For the Nov 2020 recall, GM dealers installed diagnostic software and reduced battery state of charge to 90%. GM said the risk of fire is increased when the battery is charged to full, or very close to full capacity. Although the software update can help reduce the risk of fire, its only a temporary solution.

After disassembling battery packs as part of the automaker's own investigation into the issue, GM said it discovered "manufacturing defects in certain battery cells produced at LG's manufacturing facilities beyond the Ochang, Korea, plant."

GM said the batteries may have a torn anode tab and folded separator, which increases the risk of fire. 

The recall also leaves GM without any fully electric vehicles for sale in North America as its looks to compete with Tesla.

The battery pack is the most expensive component in an electric vehicle. According to energy storage research firm Cairn ERA, General Motors pays an average of  $169 per kWh for its battery cells while the industry average runs at about $186 per kWh, CNBC reported. The Bolt is equipped with a 66 kWh battery pack. 

The original Bolt EV recall was the result of a Oct 2020 investigation by the National Highway Traffic Safety Administration that was opened after three battery fires were reported. A month later, GM announced its was voluntarily recalling 68,667 Bolts from the 2017 through 2019 model years, including around 51,000 sold in the U.S. 

"Our focus on safety and doing the right thing for our customers guides every decision we make at GM," said Doug Parks, GM executive vice president, Global Product Development, Purchasing and Supply Chain. "As leaders in the transition to an all-electric future, we know that building and maintaining trust is critical. GM customers can be confident in our commitment to taking the steps to ensure the safety of these vehicles." 

GM said it's working aggressively with LG to increase production of replacement battery modules and will notify customers when the parts are ready. 

In the meantime, GM is directing customers to set their vehicle to a 90 percent state of charge limitation. The automaker is also asking customers to charge their vehicle more frequently and avoid depleting their battery below approximately 70 miles of remaining range, where possible.  

GM also advised its Bolt customers to park their vehicles outside immediately after charging and should not leave their vehicles charging indoors overnight.

The latest recall might delay LG Chem's initial public offering (IPO) for battery unit LG Energy Solution (LGES) which was planned for September.

"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," Samsung Securities analyst Cho Hyun-ryul said to Reuters on Monday.

In Dec 2019, LG Energy Solution formed a new joint venture company with GM called Ultium Cells LLC to build batteries in the U.S. The two companies are investing up to $2.3 billion in the equally owned joint venture company to build a battery factory in Ohio to supply batteries for GM's future EVs. The plant is currently under construction.

In April, Ultium Cells LLC announced an additional $2.3 billion investment to build a second EV battery cell factory in the U.S. The new facility will be located in Spring Hill, Tennessee and is scheduled to open in late 2023.

The factory will manufacture batteries for GM's future electric vehicles built in Tennessee. The automaker announced last year that it will invest $2 billion in its Spring Hill Manufacturing facility to build fully-electric vehicles, including the upcoming Cadillac LYRIQ crossover, the first electric vehicle from GM's luxury division. 

FutureCar Staff