EV Fire Risk
Global carmakers’ electric vehicle (EV) risk is on the uptick. General Motors (GM) announced on Aug. 6 that it has set aside US$800 million in provisions for a recall of the Bolt EVs in its second-quarter earnings announcement. Its second-quarter sales reached US$34.2 billion. The company announced that its net profit is US$2.8 billion. Total provisions, including the recall cost for the Bolt EVs, amounted to US$1.3 billion. CNBC reported that the cost of recalling the Bolt EVs undermined GM's business performances.
GM announced its second recall of the Bolt EVs late last month. A GM official said that two rare defects have been identified in the batteries. He said at the time that the company is planning to replace defective battery modules. A battery module is a frame-shaped part to protect battery cells from external impact, heat and vibration.
Prior to this, GM developed a software diagnostic program and launched a massive recall after a series of Bolt EV fires in 2020. However, after the first recall did not stop Bolt EV fires in the United States, the company released a recall plan including replacing its battery modules. The U.S. carmaker is planning to replace battery modules depending on whether the batteries are abnormal or not after inspecting them. The provisions will be used for this process.
More than 70,000 Bolt EVs were sold worldwide. Recall costs can soar if more vehicles are required to replace battery modules. InsideEVs, a media specializing in electric vehicles, estimated the recall cost for a Bolt EV at US$11,600. It said that with such a high recall cost, GM would not be able to make profits from selling this model.
Separately, the National Highway Traffic Safety Administration (NHTSA) of the United States has been conducting an investigation into Bolt EV fires since the end of 2020. An NHTSA official warned that there is a risk of a fire in a high-voltage battery pack under the rear seat of the Bolt EV. He advised car owners to be careful because such fires can spread to parking facilities or homes. The NHTSA has taken over relevant data from GM to find out the cause of fires.
As GM has set aside large provisions in the second quarter, attention is focusing on Korea. This is because the batteries have been supplied by LG Energy Solution. "LG Electronics is negotiating with GM because defects were identified in battery modules, not battery cells," an LG Energy Solution said. "We are actively cooperating with GM to ensure that the recall can be smoothly implemented, but cost sharing has not been decided yet." Industry insiders predict that LG Energy Solution and LG Electronics will share the cost.
LG Electronics announced late last month that it logged an operating profit of 1,112.7 billion won in the second quarter. But if it has to set aside provisions to cover the recall cost, a deep cut in operating profit is inevitable. Given the size of GM’s provisions, LG Electronics may have to reflect hundreds of billions of won to over one trillion won in provisions. For reference, Hyundai Motor and LG Energy Solution decided to share the 1.4 trillion won cost of recalling Kona EVs at a ratio of three to seven.