Bolt expands car recall, but GM and LG Chem's love-hate relationship is not hidden

On August 20, General Motors announced the recall of 73,000 Chevrolet Bolt electric vehicles that use LG Chem batteries. This is an expanded recall after GM decided to recall 69,000 Bolts in July this year. What is even more surprising is that GM announced that they will suspend sales of the Bolt until they are satisfied with the repair plan. In other words, the current problems related to the Bolt battery cannot be completely solved.

GM's electric vehicle strategy suffers a major blow

After the Biden administration came to power, the development of electric vehicles in the United States has accelerated significantly. For General Motors, this is a great time to continue to expand its share of electric vehicles in the United States. As GM's best-selling electric vehicle in the United States, Bolt naturally needs to take on greater responsibilities than its other models. Judging from the sales in the first half of the year, Bolt is the third best-selling electric vehicle in the US market, second only to Model Y and Model 3. Once Bolt suspends sales, not only will it be hopeless to catch up with the Model 3 in the short term, but its third place is likely to be taken away by the Ford Mustang Mach-E behind it. This will have a major impact on GM's electrification strategy.

According to GM's announcement, we can find that the batteries provided by LG Chem for this model may have two production defects: battery anode tearing and diaphragm wrinkling, which increases the risk of fire. Before the announcement, 10 Bolt electric vehicle fires had occurred. GM has determined that there are problems with the batteries at LG Chem's Ochang plant in South Korea, which has led GM to continue selling Bolt electric vehicles to the market despite high suspicion that the current batteries are defective.

In fact, this recall is an expanded recall. In July this year, GM had already recalled 69,000 electric vehicles. At that time, the National Highway Traffic Safety Administration (NHTSA) had already issued a warning to Bolt owners: Do not park the vehicle at home after charging.

In addition to this suggestion, GM also asked owners to avoid leaving the Bolt charging overnight. The 69,000 electric vehicles that were recalled at the time also experienced another recall due to software upgrades in November last year. For Bolt owners, the poor car experience is beyond description.

In terms of costs, the recall in July cost as much as $800 million, and this expanded recall will cost more than $1 billion. In order to avoid the negative impact of the recall on GM's performance and financial statements, GM told investors in the announcement that all the related recall costs will be borne by LG Chem.

LG's split listing may be affected

As we all know, LG Chem is a global battery manufacturer that can compete with CATL. Due to the strong demand for power batteries, LG Chem has split its battery business and established LGES separately, seeking to go public separately with a higher valuation.

Originally, LGES was going to go public in September this year, but the accident at GM will inevitably have a significant impact on LGES's listing. Not only does a large amount of profit need to be paid to the OEM, but LGES's engineering capabilities and production quality will also be questioned and challenged by investors. However, for LGES, the batteries supplied to GM this time are LG Chem's pouch batteries, which are different from the cylindrical batteries supplied to Tesla and other customers, so this design defect will not affect other car brands for the time being. However, for LG Chem, if the cause cannot be found and the relevant problems cannot be solved in the shortest time, the company's listing process will become less optimistic. With GM's announcement that all losses will be borne by LG Chem, LG Chem has experienced a major decline, with a single-day plunge of up to 11%, and its market value evaporated by nearly $5 billion in just one day. LG Electronics, which is responsible for assembling LG Chem batteries into modules, also fell 4.1% on Monday.

It must be mentioned that earlier, Hyundai Motor in South Korea also had multiple fires this year in models equipped with LG batteries, and the first electric car in the ID series on Volkswagen's MEB platform caught fire, and LG was also involved. Among them, the recall related to Hyundai in South Korea reached 82,000 electric vehicles, which was the first case of large-scale replacement of batteries worldwide, with a total cost of 1 trillion won (about 850 million US dollars). According to relevant information, LGES will bear 60% of the costs. If the Bolt problem cannot be solved, LG Chem and LGSE will suffer significant economic losses. This is not only about battery-related expenses, but also about the losses caused by GM's inability to sell Bolt. From a deeper perspective, if LGSE cannot find the root cause of the constant fires, it will inevitably cause customers' confidence to continue to erode.

LG Chem: The one that cannot be abandoned

For GM, even if LG is solely responsible for this incident, the potential impact of GM's loss of electric vehicle sales is huge. GM is currently undergoing an active transformation, and electric vehicles, as a major development direction, are one of the important indicators for investors and the public to measure GM's transformation. In the case that GM's self-driving Cruise has been delayed in large-scale deployment, whether electric vehicle sales continue to improve has become an important support for GM's stock price.

In the era of electric vehicles, the importance of power batteries to OEMs is self-evident. Batteries not only account for 1/3 of the cost of electric vehicles, but also contribute to the vast majority of safety accidents involving electric vehicles. Any disturbance related to batteries is enough to provoke the most sensitive nerves of OEMs. More importantly, the current power battery production capacity is obviously insufficient. This is why even with such a big accident, GM has no way to exclude LG from its supply chain.

For GM, a more reliable solution is to develop its own batteries and then build its own battery factory. This path is quite challenging for the OEM. From GM's perspective, for core components such as power batteries, it is too risky to sign contracts with suppliers to ensure the security of the supply chain.

On the other hand, they can acquire or invest in battery manufacturers to quickly gain core competitiveness in the short term. However, in the current environment, battery suppliers with strong system capabilities are the most popular in the market.

Capabilities cannot be built in one day. In the field of batteries, Tesla is ahead of other global automakers. This is something that GM and all other traditional OEMs should learn from.