LG Corp, which supplies batteries to General Motors, has allocated 1.1 trillion won (approximately $918 million) to cover costs related to the recall of Chevrolet Bolt electric vehicles, reassuring investors concerned about the dispute between the South Korean conglomerate and its major automotive client.
LG Energy Solution, a unit of LG Chem, announced on Tuesday that it will book 620 billion won in provisions after fires prompted GM to recall over 100,000 vehicles. Meanwhile, LG Electronics, which assembles cells from LG Energy, recorded a separate provision of 480 billion won after releasing third-quarter earnings that fell short of analysts' estimates, including costs reflected in second-quarter earnings. The LG Group companies have now totaled 1.4 trillion won in provisions related to the recall.
LG Energy stated that it will now resume its initial public offering process and strengthen its partnership with GM, which estimated in August that replacing the batteries would cost around $1 billion and plans to seek compensation from LG.
Horace Chan, an energy analyst at Bloomberg Intelligence, noted that LG's swift agreement with GM regarding the Bolt EV recalls provides clarity on profit impact and the robustness of its partnership with GM. He added that LG needs to ensure there are no more large-scale defects in the future, as investor patience has been worn thin by a series of recalls over the past year.
LG Chem's shares closed up 4.2% in Seoul, while LG Electronics gained 3.3%. LG Chem separated from LG Energy last year and submitted an IPO application to the Korean stock exchange for preliminary review in June, stating at that time that it aims to debut later this year.
The Korean company stated, "LG Energy successfully resolved the recall issue seamlessly with GM, a key client in a strategic partnership spanning more than 10 years." There had been speculation that the battery fire issue might have arisen during the assembly of the cells into modules, which LG Electronics handled, rather than the cell production by LG Energy, according to a note from Samsung Securities Co.
Last month, GM announced that it found a solution to avoid battery fires in the Chevrolet Bolt EV and that the manufacturing processes for lithium-ion batteries in the larger Bolt EUV model had been optimized. GM also linked the fires to two defects: folded separators and torn anode tabs.
