Hyundai Motor-LG Energy Solution Agree on 1 Trillion Won Kona EV Recall Cost (Comprehensive)

Agreement on Kona EV Electric Vehicle Recall Costs
Hyundai Motor 30% · LG Energy Solution 70% Estimated

[Asia Economy Reporters Choi Dae-yeol and Lee Chang-hwan] Hyundai Motor Company and LG Energy Solution have recently reached a broad agreement on the recall costs for the Kona EV (electric vehicle), which was recently subject to a recall decision.

On the 4th, Hyundai Motor announced a correction to its provisional operating profit for last year on a consolidated financial statement basis, revising it from 2.7813 trillion KRW to 2.3946 trillion KRW. The provision of 386.6 billion KRW related to the Kona EV recall was reflected in the fourth quarter results of last year.

LG Chem, the corporation before the spin-off of LG Energy Solution, also revised its provisional results for last year on the same day, lowering its operating profit from 673.6 billion KRW to 118.6 billion KRW. An additional 555 billion KRW was reflected as recall costs for battery replacement.

According to industry sources, LG Chem had already reflected an additional provision of over 100 billion KRW following the Ministry of Land, Infrastructure and Transport's recall announcement last month. The total provision LG Energy Solution reflected for this recall is estimated to be around 660 billion to 680 billion KRW. The two companies did not disclose the specific cost-sharing ratio related to the battery replacement.

Hyundai Motor previously announced a global recall of a total of 81,701 units, including the Kona EV, Ioniq EV, and Elec City buses produced from November 2017 to March 2020. The two companies had been negotiating the distribution of recall costs, estimated at around 1 trillion KRW, and recently reached an agreement, reflecting it in last year's financial statements.

Hyundai Motor stated, "Through close cooperation between the two companies, we will make every effort to ensure swift market action. We will prioritize customer safety and continue to actively pursue customer protection policies, doing our best to restore trust in quality."

LG Energy Solution explained, "We plan to actively cooperate with the recall, prioritizing consumer safety. To this end, the two companies have agreed to share the necessary costs."

In the market, it is viewed that Hyundai Motor bore a larger share of the costs than initially expected during the agreement process, while LG Energy Solution bore less. Hyundai Motor had estimated that the battery replacement recall would cost about 1.04 trillion KRW. It is known that during negotiations, LG Energy Solution had expressed the opinion that it should bear most of the replacement costs as the battery supplier.

Hwang Kyu-won, a researcher at Yuanta Securities, said, "It is unclear from the correction announcement alone whether the agreement on battery replacement costs is final or if there is room for additional negotiations depending on the determination of the fire cause," adding, "LG's provision appears to be less than the cost of the batteries being replaced."