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S Korea's LG Chem shares dive on GM electric car recall

S Korea's LG Chem shares dive on GM electric car recall

FILE PHOTO: The logo of LG Chem is seen at its office building in Seoul, South Korea, October 16, 2020. REUTERS/Kim Hong-Ji/File Photo//File Photo

SEOUL : LG Chem Ltd shares closed down 11.1per cent on Monday after General Motors Co said it would recall an extra 73,000 Chevrolet Bolt cars that use the South Korean firm's batteries, months after a similar recall by Hyundai Motor Co.

GM on Friday expanded its recall of Bolt electric vehicles (EVs) due to fire risk from what it called battery manufacturing defects, saying the recall would cost US$1 billion and that it would seek reimbursement from LG.

The U.S. automaker said the recall covers vehicles beginning model year 2019 and that it would indefinitely halt Bolt sales. LG Chem said it was working to ensure a smooth recall.

LG Chem, which is preparing an initial public offering (IPO) for battery unit LG Energy Solution (LGES), lost more than US$6 billion in market value, marking its biggest intraday percentage loss since March 2020.

"The 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 finalising the IPO paperwork," said Samsung Securities analyst Cho Hyun-ryul.

GM initially recalled 69,000 Bolt cars in July. Its expanded recall comes about a week after a fire involving a Volkswagen AG ID.3 EV carrying an LGES battery.

Six months earlier, Hyundai recalled 82,000 EVs over LGES battery fire risk at an estimated cost of about 1 trillion won (US$851.90 million).

Both GM's and Hyundai's recalls involve pouch-type batteries, rather than cylindrical batteries supplied to LGES customers including Tesla Inc.

In February, South Korea's transport ministry said a joint investigation with LGES and Hyundai found defects in battery cells at an LGES factory in China. The investigation is ongoing.

Neither LGES nor Hyundai have disclosed how they plan to split recall costs, though analysts expect LGES to assume 60per cent.

Batteries are a big component of LG Group earnings. LG Chem earned 40per cent of operating profit from batteries - including EV batteries - in April-June. Earlier this month, LG Electronics Inc cut its second-quarter operating profit by more than a fifth to reflect GM recall costs.

Shares of LG Electronics, which assembles LGES cells into battery modules, closed down 4.1per cent, versus the local benchmark KOSPI's 1per cent rise.

(US$1 = 1,172.5900 won)

(Reporting by Heekyong Yang and Jihoon Lee; Editing by Kenneth Maxwell and Christopher Cushing)

Source: Reuters

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