Hyundai, LG Energy agree to split EV recall costs, reflect in Q4 results

Hyundai Motor Co. and LG Energy Solution Ltd. have agreed on how to split the costs of replacing the electric vehicle batteries made by the LG Group affiliate and installed in three Hyundai EV models.

Both companies also said on Mar. 4 that they are revising down their operating profits for the fourth quarter of 2020 to reflect the costs estimated at a combined 1 trillion won ($900 million) as provisions.

Under the agreement, Hyundai will take up some 30% of the costs to replace the battery system in about 82,000 vehicles, while LG will assume the payment of the remainder.

Last week, Hyundai Motor said it will recall 81,701 units of its electric vehicles sold worldwide over fire risk. The three models subject to the recall are 75,680 units of the Kona subcompact SUV, 5,716 Ioniq EVs and 305 Elec City buses manufactured between November 2017 and March 2020.

Hyundai said the EVs, to be recalled from Mar. 29, will have their battery cells replaced. The battery system subject to the replacement was manufactured by Korea’s No. 1 EV battery maker, LG Energy Solution, a spin-off of LG Chem Ltd.

Hyundai said on Thursday that it was revising down fourth-quarter operating profit by 386.6 billion won to 1.25 trillion won, while LG Chem slashed its operating profit by 555 billion won to 118.5 billion won. LG Energy Solution is wholly owned by LG Chem.

AGREEMENT TO HELP HYUNDAI, LG GAIN GROUND IN EV MARKET

Hyundai's latest move follows a recall in October of 2020 that saw more than 70,000 Kona SUVs globally taken in to receive software updates to address the possibly fire-prone battery cells. But some of the recalled vehicles caught fire even after the upgrade.

The transport ministry said last week that an initial investigation into the case found that faulty high-voltage battery cells pose a fire risk.

The ministry also found that Hyundai’s battery management system was not appropriately applied to the fast-charging system, hinting that it may have caused the fires.

A total of 15 battery-related fires, including four overseas, have been reported since the Kona EV's launch in 2018.

Industry officials said Hyundai and LG, the top makers of EVs and batteries, respectively, in Korea, agreed on how to split the bill to avoid missing out on the fast-growing global electric car market.

Hyundai Motor recently held a contest to select battery suppliers for its EV models to sit on its own Electric-Global Modular Platform (E-GMP) that will underpin all forthcoming electric cars from both Hyundai and sister firm Kia Corp. LG Energy Solution was chosen as one of the suppliers.

Write to Byung-woo Do and Jae-Kwang Ahn at dodo@hankyung.com
In-Soo Nam edited this article.