[Click eStock] "LG Chem, Battery Cell Defect Misunderstanding Must Be Cleared... Target Price Down 5%"

Samsung Securities Report

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] On the 24th, Samsung Securities maintained a buy rating on LG Chem but lowered the target price by 5% to 1,050,000 KRW. This decision was based on the judgment that it is necessary to dispel the market misunderstanding that the cause of the fire was concentrated on the battery cells, amid a situation where the stock price has fallen more than 10% due to GM's expanded recall.

Recently, GM announced an expansion of the recall target for its electric vehicle Bolt, increasing the number from the existing 69,000 units by an additional 73,000 units, confirming a total of 142,000 units subject to recall. GM recognized the recall cost as 1.8 billion USD (2.11 trillion KRW), adding 1 billion USD (1.17 trillion KRW) to the previous 800 million USD (940 billion KRW).

The minimum cost for LG Energy Solution is expected to be around 200 billion KRW. When GM recognized the 800 million USD (940 billion KRW) cost, LG Electronics and LG Energy Solution recognized 234.6 billion KRW and 91 billion KRW respectively in the second quarter. Considering cost recognition of the same proportion as GM's additional cost recognition (1.17 trillion KRW), LG Electronics and LG Energy Solution are expected to reflect additional amounts of 293.3 billion KRW and 113.8 billion KRW respectively.

Considering the recall case of Hyundai Motor's Kona, the cost recognized by LG Group out of the 2.11 trillion KRW recognized by GM is estimated to be about 50-65%. The cost-sharing ratio between LG Electronics and LG Energy Solution was 72% and 28% respectively based on the provisional recognition in the second quarter. However, since the U.S. battery pack facility was transferred to LG Energy Solution from October last year, if the final cost-sharing ratio within the group is conservatively assumed to be 40%, LG Energy Solution's final cost is expected to be between 423 billion KRW and 555 billion KRW.

Hyun-ryeol Cho, a researcher at Samsung Securities, said, “Only the minimum cost-sharing reflecting the yet-to-be-confirmed cost-sharing ratio between GM and LG Group was applied,” and added, “Since a full replacement was considered, additional reversals may be possible in the case of partial replacement.” Considering that the battery fire risk has been re-emphasized, market trust in the battery cell business is analyzed to have declined. Researcher Cho said, “There is an opinion that the GM Bolt fire was caused by problems in the module packaging process rather than the battery cells, which can be proven through the cost-sharing ratio between LG Electronics and LG Energy Solution,” and added, “Although further investigation is needed for the Volkswagen ID.3 fire, clear evidence that it was not caused by the battery is necessary to dispel market misunderstandings.”

This content was produced with the assistance of AI translation services.