GM to Seek $1B Reimbursement from LG Chem for Chevy Bolt Recall

General Motors Expands Chevrolet Bolt Recall Amid Battery Concerns

General Motors, a leading American automotive manufacturer, broadened its recall of Chevrolet Bolt electric vehicles on Friday. This expansion stems from identified fire hazards linked to defects in the battery manufacturing process.

The automaker has stated its intention to seek full reimbursement from LG Chem, its battery cell supplier, anticipating losses totaling $1 billion as a result of the recall efforts.

Market Reaction to the Recall

News of the recall, marking the third instance for this particular vehicle, triggered a significant downturn in LG Chem’s stock performance. Shares declined by 11% on Monday, resulting in a $6 billion reduction in the company’s market capitalization.

Conversely, GM’s stock experienced a more moderate decrease, closing down 1.27% at the end of the trading day.

LG Chem's Prior Battery Issues

This situation isn't isolated. Earlier in the year, Hyundai initiated a recall of 82,000 electric vehicles due to a comparable battery fire risk. The estimated cost associated with this recall was approximately $851.9 million.

Hyundai’s battery collaboration was with LG Energy Solution, a specific division of LG Chem. This recall may potentially delay the company’s planned initial public offering, scheduled for September.

Identified Battery Defects and Industry Trends

GM’s internal investigation revealed specific battery cell defects, including torn anode tabs and folded separators. This recall follows a recent fire incident involving a Volkswagen AG ID.3 EV, also utilizing batteries from LG Energy Solution.

Earlier this year, both Volkswagen and Tesla began exploring a shift away from LG Chem’s pouch-type lithium-ion battery cells. They are now considering prismatic-type cells manufactured by companies like CATL and Samsung SDI.

Impact on GM's EV Sales

The recall effectively leaves GM without any electric vehicles available for sale in North America. This absence hinders its ability to compete with Tesla and other automakers as the demand for EVs continues to grow.

The resulting loss of sales, coupled with safety concerns and the potential for advancements in battery technology, may prompt GM to reconsider its battery supply partnerships.

Financial Implications and Battery Costs

GM plans to replace the defective battery modules in Chevy Bolt EVs and EUVs, accounting for the $1 billion in projected losses. This is in addition to the $800 million already allocated for the initial Bolt recall announced last November.

Battery packs represent the most substantial cost component in electric vehicles. According to data from Cairn ERA, an energy storage research firm, the average cost is around $186 per kWh. GM currently pays approximately $169 per kWh, and the Bolt features a 66 kWh battery pack.

Future of the GM-LG Chem Partnership

Neither LG Chem nor GM responded to requests for comment regarding the future of their collaborative plans. These plans, announced in April, involved the construction of a second U.S. battery cell factory in Tennessee.

The joint venture, known as Ultium Cells, was intended to produce over 70 GWh of energy.