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LG Electronics (KRX: 066570) agreed to repay General Motors (NYSE: GM) up to $1.9 billion to recall and replace defective Chevrolet Bolt EV and EUV batteries due to fire risks.

In August, GM expanded its recall of Chevrolet Bolt EVs and EUVs to include the remaining 2019 and all 2020-2022 models after discovering two manufacturing defects in the batteries supplied by LG. The defects included a torn anode tab and folded separator in batteries, which increases the risk of fire. The expanded recall covered more than 140, 000 vehicles

GM first issued a recall of Chevrolet Bolt EVs and EUVs in November 2020. The initial recall covered the model years 2017 to 2019. In July 2021, GM issued another recall affecting 50,932 vehicles Model Year 2017-2019.

The U.S. automaker initially estimated that the cost of the recall would be around $1.8 billion. However, its estimate increased to $2 billion. In August, it missed Wall Street analysts' earnings expectations for the second quarter. Its quarter earnings were negatively impacted by warranty recall costs including the $800 million associated with the Chevrolet Bolt EVs and EUVs.

The agreement between GM and LG is a big help for the U.S. automaker, which will recognize an estimated recovery in the third quarter that will offset $1.9 billion of $2.0 billion in charges associated with the recalls.

In a statement, GM Vice President of Global Purchasing and Supply Chain Shilpan Amin said, LG is a valued and respected supplier to GM, and we are pleased to reach this agreement. Our engineering and manufacturing teams continue to collaborate to accelerate production of new battery modules and we expect to begin repairing customer vehicles this month.”

GM started shipping new modules to dealers to replace all defective battery modules in Chevrolet Bolt EVs and EUVs. The automaker is prioritizing vehicles based on "specific build timeframes" where it believes battery defects seem to be clustered. It has a notification process that informs affected customers when their replacement modules will be available.

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