LG Chem's shares plummet following the new General Motor’s EV recall

LG Chem Ltd.’s shares reportedly plunged on Monday, Aug. 23, not long after General Motors made an announcement about another batch of recalls for its Chevy Bolt EV units. The South Korean chemical company was affected because it supplied the batteries for the Bolt cars that were said to have defects.

General Motors recalled another 73,000 EVs on top of the previous 69,000 over fire risks related to the units’ batteries. LG Chem’s subsidiary, LG Energy Solution Ltd., provided GM with the lithium-ion batteries for the recalled Chevy Bolts.

According to Yonhap News Agency, after the GM recall, LG Chem’s shares dropped by around 10%. The new recall affected EVs that have model years 2019 through 2022 and for this, General Motors is expected to incur a $1 billion loss for the cost of the recall. This is on top of the previous $800 million for the first Bold recall affecting almost 70,000 units in July.

Currently, LG Group is said to be carrying out additional investigations on the said defects on LGES’ batteries that can cause a fire. On the other hand, GM already stated it will seek reimbursement commitments from its battery supplier.

Reuters reported that apart from the recall, GM is also halting its sale of electric vehicles until the issues are addressed and resolved. On its part, LG Chem said it is also working to make sure that the recall process is easy and carried out without any issue.

Meanwhile, the recall is not just a blow to LG’s reputation as a battery maker but it is also a big blotch to the company’s preparations for LG Energy Solution’s initial public offering (IPO). It was said that due to these recalls, the firm trimmed some $5 billion off its market value.

"Market expected that LGES would launch its IPO in September but with GM's expanded recall, LGES IPO is likely to be delayed for a month or two because the company needs to reflect the recall cost before finalizing the IPO paperwork," Cho Hyun Rryul, an analyst at Samsung Securities, said. "If LG does not manage to solve its battery defect issues, it will eventually hit its future orders from carmakers. If more fire risks/accidents arise, LG's position in the global EV market would be weakened."