Will LG Energy Solution's Burden for GM Recall Costs Increase?

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[Asia Economy Reporter Hwang Yoon-joo] LG Energy Solution has decided to reflect the provision for the additional recall of Chevrolet Bolt EV by General Motors (GM) in the U.S. in its second-half earnings. Concerns are emerging that LG Energy Solution's recall provision burden may exceed the cost of the first recall.

According to industry sources on the 29th, LG Energy Solution is expected to reflect the provision related to GM's additional recall in its third-quarter earnings. The detailed terms, such as the recall cost-sharing ratio, have not yet been finalized.

On the 20th (local time), GM announced a recall of 73,000 Chevrolet Bolt EV and Bolt EUV vehicles. This is an additional measure following the earlier recall of 69,000 Chevrolet Bolt EVs. At that time, GM reflected a provision of $800 million (approximately 947 billion KRW) in its second-quarter earnings. The additional recall cost is expected to be around $1 billion (approximately 1.18 trillion KRW).

All batteries installed in the Chevrolet Bolt EV are LG products. The battery consists of cells, modules, and packs. LG Energy Solution produces the battery cells, and LG Electronics manufactures the modules. Following GM's recall announcement, LG Electronics and LG Energy Solution also reflected provisions of 234.6 billion KRW and 91 billion KRW, respectively, in their second-quarter earnings. This accounts for about 34% of the total recall cost.

The market expects the cost-sharing ratio for LG Chem (LG Energy Solution) to increase in relation to the additional recall. This is because LG Electronics transferred its battery module business to LG Energy Solution in October last year as part of its business restructuring.

Hyun-ryeol Cho, a researcher at Samsung Securities, analyzed, "Referring to the Hyundai Kona recall case, out of the 2.11 trillion KRW recognized by GM, LG Group's cost is estimated to be about 50-65% (1.06 trillion to 1.37 trillion KRW). Assuming a conservative final cost-sharing ratio of 40% within LG Group, LG Energy Solution's final cost is estimated to be between 423 billion KRW and 555 billion KRW."

An LG Energy Solution official said, "We are investigating the causes of the cell anode tab defect and separator folding together with GM," adding, "The cost-sharing ratio for the recall has not yet been decided."

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