GM expands recall of LG Chemical shares fall sharply, Battery Division IPO may be delayed

According to foreign media reports, the share price of South Korea's LG Chemical plunged nearly 10% on Aug. 23, local time, probably the biggest drop since March 2020, and the company lost $5 billion in market value as a result. Earlier, GM announced a recall of 73000 more Chevrolet Bolt electric vehicles that use LG chemical batteries. Hyundai announced a similar recall a few months ago.

GM said the additional recall included models that went on sale in 2019 and that the move would cost $1 billion to stop sales of Bolt EV, indefinitely, and that it was considering a claim from LG Chemical. LG Chemical said it was working to ensure that the recall went smoothly.

Currently, LG Chemical is preparing for an initial public offering of (LGES), its battery-owned subsidiary LG Energy Solutions. Some experts said that GM's expansion of the recall may affect LGES's IPO process. "the market had expected LGES to launch IPO, in September, but as GM expands the recall, LGES's IPO may be delayed by a month or two because the company needs to reflect the cost of the recall before finalizing the IPO document." Said Cho Hyun-ryul, an analyst at Samsung Securities.

GM initially recalled 69000 Bolt electric vehicles in July. GM expanded the recall a week after a fire broke out in a Volkswagen ID.3 electric car using LGES batteries.

Six months ago, Hyundai recalled 82000 electric vehicles because of the risk of LGES batteries catching fire, at an estimated cost of about 1 trillion won ($851.9 million). GM and Hyundai recalled cars using LGES soft-pack batteries instead of cylindrical batteries.

In February, South Korea's transport ministry said a joint investigation with LGES and Hyundai Motor Group had found defective batteries made by LGES at a factory in China. The investigation is still ongoing.

Battery is an important part of LG Group's profit. In the second quarter of this year, 40 per cent of LG Chemical's operating profit came from the battery business, including batteries for electric vehicles. Earlier this month, LG Electronics, which assembles LGES cells into battery modules, cut its second-quarter operating profit by more than 1/5 to reflect the cost of GM's recall.

LG Electronics shares also fell 5.8 per cent on Aug. 23, compared with a 1.5 per cent rise in the local benchmark stock index by midday.