1.4 Trillion vs 2.3 Trillion... Different Reasons Behind LG and GM Recall Cost Announcements

GM Reflects Total KRW 2.3 Trillion Battery Replacement Cost in Q2
Selective Battery Replacement for New Models After Agreement...Total Amount Lower Than Initially Expected
LG Bears KRW 1.4 Trillion...GM to Spend Up to KRW 120 Billion

[Asia Economy Reporter Hwang Yoon-joo] 1.4 trillion won? 2.3 trillion won?

Regarding the electric vehicle Chevrolet Bolt fire, although General Motors (GM) and LG in the United States have concluded an agreement on the recall costs, the amounts disclosed by each company differ, drawing attention to the background of this discrepancy.

According to foreign media on the 13th, GM announced on the 12th (local time) that it will receive up to $1.9 billion (approximately 2.2733 trillion won) in compensation (reversal) from LG related to the recall for fire risk of the Chevrolet Bolt electric vehicle (EV). This amount is more than 800 billion won higher than the settlement amount (1.4256 trillion won) announced by LG Energy Solution the previous day.

In response, LG explained that the difference resulted from each company setting provisions differently according to their own standards. LG Group set aside 1.4 trillion won in provisions based on a full replacement for older models and selective replacement for newer models, while GM announced this as a reversal of the previously set provisions in the 2 trillion won range, as the obligation to bear the provision burden was resolved through this agreement.

Earlier, GM had set aside 2.3 trillion won (2 billion dollars) for the Chevrolet Bolt recall in the second quarter. The two companies had been negotiating the settlement based on this amount, and during this process, they finally agreed to fully replace the existing batteries but only replace problematic batteries in new models after a system upgrade, adjusting the recall cost from the initially expected 2.3 trillion won to about 1.6 trillion won. This means that for recently produced batteries, a system upgrade will be performed, and only batteries that develop issues will be replaced. The exact criteria for the new models have not been disclosed but are reported to be batteries produced after 2020.

Additionally, GM agreed to bear 120 billion won (100 million dollars) of the total recall cost, resulting in LG’s final burden being set at around 1.4 trillion won. A representative from LG Energy Solution stated, "For the initial production batch, full module and pack replacement will be conducted, and for recent production batches, selective module replacement will be carried out using software," adding, "The possibility of additional recall costs increasing is limited."

By agreeing to a recall cost lower than expected, LG Energy Solution has regained momentum for its initial public offering (IPO). The provision amount was reduced to the mid-1 trillion won range, and since LG Electronics agreed to share half of the burden, it was able to partially defend against a decline in corporate valuation.

Along with the agreement results, LG Energy Solution announced, "With all matters related to the recall measures agreed upon, we will resume the IPO process that was temporarily suspended." LG Energy Solution had filed for preliminary review with the Korea Exchange in June but had suspended the process due to the battery fire incident. If the preliminary review passes, the IPO could take place as early as the end of December or by February at the latest.

However, the industry and market also express opinions that it is difficult to completely rule out the possibility of additional costs. This is because there is potential consumer backlash against the ‘selective replacement’ decision for electric vehicles equipped with the new battery model. Above all, the industry and market are most concerned about the possibility of additional fires after the system upgrade.

An automotive industry official said, "LG Energy Solution discussed with GM in April, after the battery fire occurred, to proceed with a battery management system (BMS) upgrade without reflecting provisions, but another fire occurred," adding, "Because GM took the strong measure of a full recall, it is difficult to say the risk has completely disappeared."

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