SEOUL: South Korean battery firms LG Chem and LG Electronics will be shouldering a combined US$1.2 billion for General Motors' Bolt electric vehicle recall - the lion's share of the expected costs.
GM in August expanded the recall, which will replace LG battery modules due to the risk of fire, to more than 140,000 cars, estimating the cost at US$1.8 billion, but that has risen to US$2 billion.
It previously said battery production resumed on Sep 20 and replacements would begin in mid-October.
As a result of the agreement, GM said its estimated recovery in the third quarter will offset US$1.9 billion of the US$2 billion in charges associated with the recalls, based on accruals under US accounting standards.
GM said LG agreed to cover recall costs and expenses. The final recall costs will depend on the number of battery modules replaced.
“LG is a valued and respected supplier to GM, and we are pleased to reach this agreement,” said GM global purchasing vice Shilpan Amin, vice president, GM global purchasing and supply chain.
GM and LG Energy Solution, the wholly owned battery unit of LG Chem that supplies GM, are building two joint-venture US battery plants.
LG Energy Solution said the three companies conducted joint analysis and found two rare defects as the cause of the fires - a torn anode and a folded separator.
"While the recall measures will (proceed) with complete replacement of battery packs and modules made for the early models of batteries, the more recently manufactured battery modules will be selectively replaced following diagnostic software screening," LG Energy Solution said in a statement.
The LG firms said on Tuesday (Oct 12) that talks over the costs had ended. They booked most of their 1.4 trillion won in costs in the July to September quarter although some was booked in the previous quarter.
For the latest quarter, LG Chem 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.
Shares of LG Chem and LG Electronics closed up 4.2 per cent and 3.3 per cent respectively, with investors relieved there was less uncertainty over the recall costs. GM shares were up 0.6 per cent in premarket U.S. trading.
LG Energy Solution added 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.