Bolt expands recall, revealing the love-hate relationship between General Motors and LG Chem.

Introduction

Last Friday, on August 20, General Motors (GM) announced a recall of 73,000 Chevrolet Bolt electric vehicles (EVs) which use LG Chem batteries. This is an expansion of the recall of 69,000 Bolts in July of this year. To make things even more surprising, GM also announced that they will temporarily stop selling Bolts until they are satisfied with the repair plan, meaning that the problems related to Bolt batteries cannot be completely solved at present.

GM’s EV Strategy suffers a major blow

Since the Biden administration took office, the development of electric vehicles in the United States has significantly accelerated. For General Motors, this is a good time to continue expanding its share of the US EV market. As the best-selling EV currently, the Bolt naturally needs to bear greater responsibility than other GM models. From the sales performance in the first half of this year, the Bolt was only outperformed by Model Y and Model 3 in the US market, ranking as the third best-selling EV. Once the sales suspension of Bolt is put into effect, there is no hope of catching up with Model 3 in the short term, and the third-place crown is likely to be snatched by Ford’s Mustang Mach-E behind it. This will have a significant impact on GM’s electrification strategy.

According to GM’s announcement, it was discovered that the batteries provided to the Bolt by LG Chem may have two production defects: anode tearing and septum wrinkling, which increases the risk of fire. Before the announcement, there were 10 cases of Bolt EV fires, and GM had already ascertained that there was a problem with the batteries produced in LG Chem’s Ochang factory in Korea, which led to GM continuing to sell Bolts on the market despite highly suspecting that the batteries had defects.

In fact, this recall is an expanded recall because GM had already recalled 69,000 EVs in July this year. 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.Besides this, the advice given by General Motors asks Bolt owners to avoid charging the vehicle overnight. The 69,000 recalled electric vehicles also experienced a recall due to a software upgrade in November of last year. For Bolt owners, their negative experience needs no further description.

In terms of cost, the previous recall in July cost $800 million, and this expanded recall will cost over $1 billion. To avoid negative impacts on General Motors’ performance and financial reports, the announcement states that the recall expenses will be borne by LG Chem.

It is well-known that LG Chem is a battery manufacturer globally rivaling CATL. Due to strong demand for electric vehicle batteries, LG Chem has previously spun off its battery business to establish LG Energy Solution (LGES) with the aim of achieving a separate listing at a higher valuation. LGES was initially scheduled to be listed in September of this year, but the General Motors incident will undoubtedly have significant repercussions on its IPO. Not only will a large amount of profit need to be compensated to automakers, but LGES’ engineering capability and production quality will also be challenged by investors. However, for LGES, the battery supplied to General Motors is a pouch-shaped battery, which differs from the cylindrical battery supplied to Tesla and other customers. Therefore, this design flaw will not affect other car brands for the time being. Nevertheless, if LG Chem fails to discover the cause of the problem and resolve the related issues in the shortest possible time, the company’s listing prospects will become less optimistic. With General Motors’ announcement that all losses will be borne by LG Chem, LG Chem saw a significant decline with a daily plunge of up to 11%, resulting in a market value loss of nearly $5 billion. LG Electronics, responsible for assembling LG Chem’s batteries into modules, also fell by 4.1% on Monday.It is worth mentioning that earlier this year, there were multiple incidents of fires in models of Hyundai Motor Company from South Korea using LG batteries, and the first electric car in the Volkswagen ID series, built on the MEB platform, also caught fire, with LG’s involvement. Incidentally, the recall of up to 82,000 electric cars related to Hyundai was the first case of large-scale battery replacement globally, costing up to KRW 10 trillion (around USD 850 million) in total. According to related information, LG Energy Solution will bear 60% of the cost. If the Bolt issue cannot be solved, both LG Chemical and LGES will suffer significant economic losses. This is not only the cost related to batteries, but also the losses brought by General Motors’ inability to sell the Bolt. From a deeper perspective, if LGES cannot find the root cause of the continuous fires, it will undoubtedly erode customers’ confidence.

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Inseparable LG Chemical

For General Motors, even if LG is fully responsible for this issue, the potential impact of losses in electric vehicle sales is huge. Currently, General Motors is actively transforming, and electric vehicles, as a major development direction, are one of the important indicators for investors and the public to assess General Motors’ transformation. In the situation where General Motors’ self-driving Cruise cannot be deployed on a large scale, whether electric vehicle sales can continue to grow becomes an important support for General Motors’ stock price.

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In the era of electric vehicles, the importance of power batteries for automakers is self-evident. Batteries not only account for one-third of the cost of electric vehicles, but also contribute to the vast majority of safety accidents involving electric vehicles. Any movement related to batteries is enough to touch the most sensitive nerves of automakers. What’s more critical is that the current production capacity of power batteries is obviously insufficient. This is why even with such a major accident, General Motors cannot exclude LG from its supply chain.

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For General Motors, the safer solution is for them to develop their own batteries and build their own battery factories. This is a greater challenge for the automaker. From General Motors’ perspective, for such core components as power batteries, the risk of securing the supply chain by signing contracts with suppliers is too high.On the other hand, acquiring or investing in battery manufacturers to quickly obtain core competitiveness in the short term. However, in the current environment, battery suppliers with strong system capabilities are coveted in the market.

The establishment of such capabilities cannot be achieved in a day. In the field of batteries, Tesla is ahead of all global car companies. This is something that General Motors and all other traditional host manufacturers should learn from.

This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.