Will Hyundai, LG go to court over EV battery recall?

Firefighters put out a fire in a Kona Electric vehicle in Daegu, Jan. 23. Yonhap

By Baek Byung-yeul

With Hyundai Motor and LG Energy Solution (LGES) deciding to replace battery packs for the former's 82,000 electric vehicles (EVs) including the Kona EV, it appeared that the two companies have not reach an agreement over how they will share the recall expenses estimated at around 1 trillion won ($892 million).

According to the battery industry, Monday, no progress has been made yet about how much cost they will incur, and given the sensitivity of the matter, attention is growing on whether the two companies will seek legal remedies to minimize impact.

The recall announcement comes after Hyundai Motor announced its first recall of 77,000 Kona EVs four month ago as more than 10 of the cars were reported to have caught fire both here and abroad.

Despite Hyundai updating its battery management system (BMS), more fires were reported after the recall, so the carmaker decided to launch an additional recall on Feb. 24 in order to replace the battery packs in some 82,000 EVs.

On the same day, the transport ministry said it had confirmed the risk of fire was due to an issue related to the way anode taps were used in the battery cells, which appears to have drawn out lithium residue from the cells. The ministry added, however, it has yet to replicate any of the reported fires.

The ministry said some battery cells manufactured at LGES' factory in Nanjing, China, between September 2017 and July 2019 were found to have defects and added this defect could lead to fires.

As the cause of the fires is not clearly identified, LGES has claimed that a structurally compromised anode tap in the battery cells could not be a direct cause for the fires, since the transport ministry couldn't replicate the case.

But Hyundai Motor wants to resolve the case as soon as possible, as the company recently unveiled its new EV model IONIQ 5. At a time when carmakers are rushing to release EVs, the IONIQ 5 has drawn keen attention from consumers worldwide based on its retro-modern design and longer travel range compared to its competitors.

Hyundai Motor will reportedly decide the cost-sharing ratio within this week so that the recall costs could be reflected in its 2020 fourth-quarter results, but a company official denied the speculation saying “nothing has been decided yet.”

“There is no deadline for the matter. We are discussing the issue with LG and trying to reach a peaceful resolution,” the Hyundai Motor official said.

LGES also wants to settle the issue amicably. The company representative said “the two companies are discussing the matter and expect they can come to an amicable settlement.”

Hyundai Motor's Kona EV / Courtesy of Hyundai Motor

Industry analysts said the battery recall is only a one-time matter and won't affect the two companies in the long term.

LGES' recall costs will be included in the 2020 fourth-quarter performance of LG Chem, according to Kang Dong-jin, an analyst at Hyundai Motor Securities.

“According to the transport ministry regarding the Kona EV recall, there are factors that can cause fires in both battery cells and battery management systems, but the cause is not yet clearly identified,” the analyst noted, adding that the two companies will decide how to share the costs.

The analysts further noted it is hard to tell whether the Kona EV recall case has any relation with fire cases that occurred in General Motors' Bolt EV, given the U.S. carmaker said they are in the process of validating software that can diagnose potential issues early and restore 100 percent charge capability. The software is expected to be released in April.

Hana Financial Investment analyst Song Sun-jae said it is undeniable that the additional recall is a negative factor for Hyundai Motor, but on the other side, the aggressive push for recalls helps Hyundai relieve the potential risks as the carmaker is set to launch its new EV IONIQ 5.

“By removing uncertainties related to EV fires ahead of the launch of the IONIQ 5, Hyundai can reduce the marketing burden on its IONIQ brand in the future and will be able to actively promote its new EV models,” the analyst said.