LG Chem could easily survive recalls, say analysts

[YONHAP]

The free fall in LG Chem shares on Monday might have been an overly panicked reaction to bad news for the company, analysts said.

LG Chem shares closed at 798,000 won on Monday, 11.14 percent lower than the previous trading day, after General Motors announced a major recall of Bolt EVs, citing possible battery problems that could lead to fires.

Bolt EVs run on batteries made by LG Energy Solution, LG Chem's wholly-owned subsidiary.

LG Chem shares closed at 787,000 won on Tuesday, 1.38 percent lower than Monday.

There have been 10 Bolt-related fires so far, according to GM.

“The market seems to have reacted more dramatically than expected due to repeated battery-related recalls and their costs,” wrote Kang Dong-jin, an analyst at Hyundai Motor Securities, in a report Tuesday.

“It seems like the company is experiencing growing pains. The risk will decrease through technology development. There is no need to overreact to the latest case.”

Analyst Lee Anna from eBest Investment & Securities said that LG Energy Solution’s future is probably safe as the electric vehicle (EV) battery industry is destined to grow.

“The size of the EV battery market will only grow, leading to the company’s value expanding as well,” Lee wrote on Tuesday. “In order for LG Energy Solution’s market value to deteriorate, a radical scenario is needed such as half of the company’s supply deals being handed over to China's CATL.”

In order to calm investors, an investigation needs to prove that the latest spate of fires involving EV models with LG batteries did not derive from the batteries, Samsung Securities analyst Cho Hyun-ryul says.

“The market credibility of LG Energy Solution’s battery cells has been jeopardized for sure due to the repeated fire cases,” Cho said. “There needs to be firm proof that the fires did not derive from the battery cells in order to persuade the market at the moment. How General Motors, LG Electronics and LG Energy Solution will share the recall costs will provide an answer.”

General Motors last week announced an additional recall of 73,000 Bolt EVs and Bolt EUVs that run on LG batteries, citing possible “manufacturing defects” in battery cells that could “increase the risk of fire.”

The Detroit-based auto giant recalled 69,000 Bolt EVs in July.

General Motors expects the latest recall to cost $1 billion on top of $800 million for the previous one.

Early this year, Hyundai Motor announced a global recall of some 80,000 Kona Electric SUVs with LG batteries. The cost of the recall was estimated at 1.4 trillion won.

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]