[Click eStock] LG Chem and Hyundai Motor Reach Recall Cost Agreement... In-Kind Contribution Expected

[Asia Economy Reporter Lee Seon-ae] LG Energy Solution and Hyundai Motor have reached a final agreement on the cost-sharing ratio for recalls related to electric vehicle (EV) fires.

According to NH Investment & Securities on the 5th, the recall costs will be shared by LG Energy Solution and Hyundai Motor at an approximate ratio of 6 to 4. The recall costs are estimated to be about 611 billion KRW for LG Energy Solution and about 425.5 billion KRW for Hyundai Motor, totaling approximately 1.03 trillion KRW. The cost reflected as a provision for EV secondary batteries in the fourth quarter was about 59 billion KRW, and the additional cost to be reflected due to this agreement is estimated at about 555 billion KRW.

From an accounting perspective, the recall costs were reflected in the fourth quarter results, and LG Chem revised and disclosed its previous year's financial statements. Due to the recognition of recall costs, the operating profit for the fourth quarter decreased from the original 673.6 billion KRW to 118.6 billion KRW, a reduction of 555 billion KRW, and the pre-tax profit and net income for the fourth quarter turned to a loss.

The recall is expected to proceed through in-kind contributions of products produced by each company, and it is presumed that the recall costs were calculated based on the cost of these in-kind contributions.

Hwang Yoo-sik, a researcher at NH Investment & Securities, stated, "LG Chem has concluded the exhausting dispute over cost allocation by agreeing on recall costs with Hyundai Motor, and both companies are expected to have constructive discussions on expanding secondary battery volumes in the future." He added, "The secondary battery defect cases raised by the Ministry of Land, Infrastructure and Transport's investigation have been reflected in production process modifications, so the possibility of the same fire occurring again is expected to be low. Regarding the GM electric vehicle fires in the U.S., it is judged that there will be no controversy over recall cost allocation until a complete conclusion is reached."