SEOUL — South Korea’s LG Chem Ltd. and LG Electronics Inc. will be shouldering a combined $1.2 billion for General Motors’ Bolt electric vehicle recall — the lion’s share of the expected costs, reassuring investors concerned about a rift between the conglomerate and a major carmaking customer.
GM in August expanded the recall, which will replace LG battery modules due to fire risk, to more than 140,000 cars, estimating the cost at $1.8 billion.
The LG group companies said on Tuesday that talks over the costs had ended. They booked most of their 1.4 trillion won ($1.17 billion) in costs in the July-September quarter although some was booked in the previous quarter.
For the latest quarter, LG Chem, whose wholly owned battery unit LG Energy Solution supplies batteries to GM, will take a charge of 620 billion won while LG Electronics, which assembles the cells into battery modules and packs, will book 480 billion won in costs.
“LG’s swift agreement with GM on recalling Bolt electric vehicles provides clarity on the profit impact and the solidity of its partnership with GM,” Horace Chan, a Bloomberg Intelligence energy analyst, said in a note. “LG needs to ensure there are no more large-scale defects in the future, as investors’ patience has been stretched by a series of recalls over the past year.”
Last month, GM said it found a fix to avoid battery fires in the Chevrolet Bolt EV, and that manufacturing processes for lithium-ion batteries in the model and the larger Bolt EUV have been improved. GM linked the fires to two defects: folded separators and torn anode tabs.
Shares of LG Chem and LG Electronics closed up 4.2 percent and 3.3 percent, respectively, on Tuesday in Seoul with investors relieved that the uncertainty over the recall costs has gone.
LG Energy Solution added that it plans to resume working on its initial public offering, which had been suspended in August due to the lack of clarity over the recall costs.
Bloomberg contributed to this story.