LG Chem stocks hit by ESS battery recall

The LG headquarters in Seoul. Yonhap

By Kim Hyun-bin

LG Chem's stock price took a nosedive, Wednesday, after two problems emerged.

First was LG Energy Solution (LGES) announcing a voluntary recall Tuesday of its lithium-ion batteries used in energy storage systems (ESS) due to potential fire risks. The recall is set to cost the company 400 billion won ($356.6 million). LGES is a subsidiary of LG Chem.

The second was Credit Suisse slashing LG Chem's target price in half.

The ESS batteries that were made in LG Chem's factory in Nanjing, China, between April 2017 and September 2018, are subject to the recall.

“The replacement comes after thorough analysis of the origin of ESS fires and there seems to have been an initial problem with the electrode which poses a potential risk, along with a combination of external factors that could cause a fire,” an LGES official said in a press release.

The company will consult with its local and overseas clients about replacing the batteries and other necessary measures.

LGES says it will continue inspecting batteries, upgrade control software and conduct onsite inspections to minimize potential risks.

After splitting off from LG Chem on Dec. 1, 2020, LGES vowed to maintain a high quality level through rigorous checks and also pledged to implement voluntary recalls when even a slight problem or potential risk emerges, as a preemptive measure to secure clients' safety, the company said.

“Safety and quality will be at the foremost of every decision process,” LGES CEO Kim Jong-hyun said. “Through quality innovation, we will develop safe batteries that can endure any type of hazard.”

An ESS is largely composed of several lithium-ion batteries to store electricity generated from a source, such as solar or wind power, for later use.

The second incident that took a toll on LG Chem's stock price was global investment bank Credit Suisse (CS) slashing the company's target price in half, Wednesday. CS reduced the price target from 1.3 million to 680,000 won and its analysts changed their opinion from outperform to underperform.

Following the news, global investment banks, including JP Morgan and Morgan Stanley, have been dumping their shares.

LG Chem's stock price dropped 6.73 percent to 832,000 won, Wednesday.