1.4 trillion won vs 1 trillion won… Why is the battery recall provision for Hyundai and LG different?

Input 2021.03.05 15:00

Regarding the Kona Electric Vehicle (EV) recall Hyundai Motor Company (005380)The total cost estimated based on the provisions of and LG Energy Solutions differs by up to 400 billion won, drawing attention to the background.

Hyundai Motor Company announced on the 4th that it has accumulated a total of 4255 billion won in relation to the Kona recall. Hyundai Motor Company accumulated a provision of 38.9 billion won in October of last year, and additionally, it reflected 386 billion won in the recall provision on the 4th to last year’s operating profit. Accordingly, Hyundai Motor’s operating profit last year decreased from 2.78 trillion won to 2.4 trillion won.

It is reported that Hyundai Motor Company and LG Energy Solution have decided to cover the total recall cost at a ratio of 3 to 7. Taking this into account, the total cost of the recall is estimated at about 1.4 trillion won. By the way LG Chem (051910)Last year’s consolidated operating profit was revised and disclosed to 1.79 trillion won, a decrease of 555.3 billion won from the previous 2,353.1 billion won. If the provisions of Hyundai Motor Company and LG Chem are added together, it is only 1 trillion won.

In the industry, it is interpreted that the cost treatment standards are different due to the relationship between the two companies, the automaker and the parts maker. Hyundai Motors calculates the recall cost based on the price of the battery from LG Energy Solution, and from the LG Energy Solution perspective, the recall is an expense, not sales, so the cost of the battery can be reflected in the accounting.

In addition, the industry analyzes that it will be difficult to reflect the exact price in the provision because the battery produced by LG Energy Solutions can be used for this recall, and the production unit price may vary slightly depending on the price of raw materials. As for Hyundai Motors, it is difficult to know how much margin LG Energy Solutions is selling with existing margins, and it is only necessary to receive batteries in kind in time.

An industry official said, “Since it is not yet clear which side is responsible for the Kona fire, the recall cost and share ratio may change from 1.4 trillion won and 3 to 7 respectively.” There is also the possibility of being reversed,” he said.