Explained here why LG Electronics is paying $1.9 billion to General Motors

LG Electronics (KRX: 066570) set to reimburse General Motors (NYSE: GM) nearly $1.9 billion or so. This reimbursement is for the fixing and recalling of the Bolt EVs made by Chevrolet because of the fire hazards caused by the faulty battery packs. The automaker is set to win big because of this settlement. 

The company had already fallen short of Wall Street’s predictions for the second quarter because it had set aside some money linked to expected recall expenses. However, according to the agreement between the two companies, General Motors will settle an estimated recovery of $1.9 billion in the third quarter. 

Characteristics of Agreement

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This payment is set to offset part of the $2 billion linked with the recalls. The auto manufacturer had made it clear earlier that it would be seeking reimbursement from the South Korean company. 

The total cost LG will need to pay will be based on how many cars must be rectified. According to Reuters, LG companies said they expected a total recall cost of around $1.2 billion. However, the company didn’t respond to comments immediately after it announced this. 

The manufacturing issues happened at LG’s Battery Solution’s sites in Michigan and South Korea. These rare manufacturing defects included a folded separator and a torn anode tab that can help make the battery cell more prone to fire hazards when present at the same time. 

Senior Management

General Motors’ VP of global supply chain and purchasing, Shilpan Amin, said that LG Electronics is both a respected and valued GM supplier. He continued to say that they were happy to reach such an agreement with their trusted partners. In addition, Mr. Amin said their manufacturing and engineering departments continue to work closely together to produce new battery modules faster. He said that they expect to start repairing the faulty cars this month. 

General Motors claims that the fault battery cells have caused thirteen of its electric cars to catch fire. This settlement comes just when both companies are looking to set up a pair of battery facilities in the United States via a joint venture called Ultium Cells LLC.