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LG Chem agrees to cover most of Hyundai's $900m EV recall

Deal with battery supplier reached quickly as automaker protects brand image

The recall linked to LG Chem battery cells includes Ioniq electric sport utility vehicles.   © Reuters

SEOUL -- South Korea's LG Chem has agreed to shoulder 70% of the cost of a nearly $900 million recall of Hyundai Motor electric vehicles at risk of battery fires.

The 1 trillion won ($890 million) recall covering 81,700 vehicles -- mainly Kona and Ioniq cars sold in South Korea, the U.S. and Europe -- stems from a problem with battery cells produced at an LG Chem plant in Nanjing, China.

After Thursday's agreement, the two companies revised their 2020 earnings to include allowances for recall costs. Hyundai's operating profit was cut by about 387 billion won to 2.39 trillion won, down 34% from 2019. LG Chem lowered its operating profit by 555 billion won to 1.8 trillion won, still more than double its earnings the previous year.

This is reportedly set to be the world's most expensive electric-vehicle recall to date. The massive cost, despite the relatively small number of vehicles involved, stems from the need to replace the entire battery assembly, which accounts for about 30% of the total cost of an electric vehicle.

South Korea's transport ministry said on Feb. 24 that battery cells produced at LG Chem's Nanjing plant that were used in the Kona could short-circuit and potentially catch fire. LG Chem initially sought to deflect blame onto Hyundai, and negotiations over sharing the cost of the recall had been expected to drag on for some time.

But the recall also included Ioniq cars, and Hyundai had announced the Ioniq 5 as a flagship model just a day earlier. The automaker decided that a protracted battle with LG Chem would not be worth the damage to its brand, and the talks came to a speedy conclusion.

The deal was reached to "minimize inconvenience to our customers and turmoil in the markets," Hyundai said.

LG Chem said it would "actively cooperate" with the recall and that "consumer safety is our top priority."

Hyundai recalled roughly 77,000 Konas in October, also due to a battery issue.

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