GM's 2 Billion Dollar Headache

By Cee Lippens September 22, 2021
Malcolm Gladwell has hopped on the all electric future as a  celebrity endorser for GM’s “next generation” electric vehicle innovation campaign. Malcolm Gladwell has hopped on the all electric future as a celebrity endorser for GM’s “next generation” electric vehicle innovation campaign.

The Chevy Bolt recall has been a slow-motion catastrophe since it started last November and has morphed into the priciest recall in history. 

In August, GM expanded on a previous recall issued for the Bolt. The latest recall includes all Bolt EVs and Bolt EUVs sold worldwide, starting from the first model up until the latest ones built this year. Over 68,000 Chevrolet Bolt EVs were recalled back in November 2020, after five of the Bolts caught fire between 2017 and 2019.

The latest recall covers 73,000 additional vehicles, 60,000 of which are in the U.S. It appears to have been prompted by a flurry of posts on the Bolt’s social media pages involving a 2020 Bolt that caught fire in California days before the latest recall was announced.  

The price tag for the latest recall is large, around $1 billion-plus, on top of the $800 million spent on the original recall. GM reported in this year's second-quarter earnings report that the recall cost made up the bulk of GM’s $1.3 billion in quarterly warranty expenses. "Out of an abundance of caution, GM will replace defective battery modules in Chevrolet Bolt EVs and EUVs with new modules, with an expected additional cost of approximately $1 billion,” GM said in a statement on August 20th.

The automaker said it is seeking reimbursement for some of that cost from the battery supplier, LG Chem. GM said that, in rare cases, batteries supplied to GM for the Bolts "may have two manufacturing defects — a torn anode tab and folded separator — present in the same battery cell, which increases the risk of fire.” The automaker said the batteries with these new modules will come with an eight-year/100,000-mile limited warranty. 

GM and LG Chem began working together in 2009 and have deepened the relationship over the years as the automaker has worked to widen the company's EV footprint. The U.S automaker and the South Korean battery producer opened their first joint venture electric battery plant with a sprawling 2.8-million-square-foot factory in Lordstown, Ohio. The plant employs around 1,200 people.

GM and LG Chem announced new plans this year to build a second U.S. battery cell factory — a $2.3 billion facility in Spring Hill, Tenn., that will supply the automaker with the cells needed for the 30 electric vehicle models it plans to launch by mid-decade.

GM Chevy Bolt ion battery assembly at the Brownstone Michigan plant. 

 

The nuts and bolts of GM’s shift to EVs is its Ultium platform, and the Ultium lithium ion batteries, which will be built at the Spring Hill factory. 

GM is not the only automaker that has had to deal with EV fire problems. Hyundai has recalled about 90,000 of its Kona EV’s because of increased risk of fire while parked, charging and/or driving. The problem with the Kona appears to have been the same as with GM’s Bolt models: manufacturing defects involving batteries supplied by LG Chem. The Hyundai recall is shaping up to be the second largest auto recall, with each car costing about $11,000 to recall and repair the battery. 

Tesla also had a smaller and much less expensive recall last year after two highly publicized battery fires. Tesla’s fix involved an update to its vehicle software. This recall followed an earlier recall that added protection plates around the battery, after a car caught fire when the battery was damaged from road debris. All these batteries were LG models. 

The South Korean supplier’s shares took a sharp hit last month in the wake of the Chevy announcement. LG has plans to go public later this year potentially becoming South Korea’s largest public listing in history with a projected IPO between $10-12 billion. The company has inked deals with several EV auto manufacturers including Tesla, Hyundai, Audi, Ford, Porsche and Volkswagen.  

LG’s relationship with GM is a little different than its other battery buyers, with the two companies having entered into a deal centering on a proprietary battery model that is central to the U.S. carmaker’s $27 billion green strategy. GM has a future strategy involving carving out a large portion of the EV market. The strategy was fueled by the company's bankruptcy filing for Chapter 11 protection on June 9, 2009. GM survived with the help of a federal bailout predicated on GM’s future EV plans.

That bailout was facilitated by the fact the company was already focused on creating an affordable EV model, the Volt. “This year, and the third quarter, is a testament to GM’s resilience,” CEO Mary Barra said. “We entered the pandemic in a strong position and acted decisively to keep our teams safe, conserve cash and preserve liquidity, all while keeping our critical product programs on track. Now we are well positioned to meet rising customer demand, accelerate our transformation and deliver our vision of a world with zero crashes, zero emissions and zero congestion.”

GM's EV1 at the The Heart of Route 66 Auto Museum , the first mass-produced electric vehicle, and one of the rarest from the 90s.

 

This is not the first or even second time the automaker has had EVs on its mind. Back in the early days of automobiles, electric cars were almost as popular as gas-powered models. Gas-powered models required a hand crank to start them, and were clumsy and annoying. Then in 1912, Cadillac came out with the first electric starter for gas-powered vehicles. Electric cars died out shortly thereafter, and GM surged to the front of the pack becoming the world’s largest carmaker. Eighty-four years later in 1996, GM was at it again in response to a California mandate that required automakers to have zero-emissions vehicles ready for market by 1998. Their offering?

The first mass-produced electric vehicle of the modern era, the EV1, a two-seater that had a range of about 50 miles and was offered for lease to buyers in California and Arizona. California weakened its mandate a few years later, ending the legal pressure on automakers to offer zero-emission cars, right around the time the EV1 was ready for mass-distribution. After a few years and an awful marketing strategy, GM unceremoniously ended the EV1.

Though it was popular with drivers who had leased the EV1, GM refused to renew the leases on the 1,100 cars that were on the road, and would not allow drivers to purchase their leased EV1s either. GM recalled the vehicles, and crushed almost all of them without fanfare. It was a costly undertaking. The company spent around $1 billion and it was a public relations disaster. In 2006, the documentary "Who Killed the Electric Car?" helped cement the idea that GM had made a colossal mistake. Technically GM killed the electric car twice. 

GM planned to turn that perception around with the Chevy Volt and Bolt. 

Business Insider named CEO Mary Barra the most influential CEO in GM's history. 

 

The Volt project was still in its infancy when the U.S. economy tanked in 2008.  President Obama focused on the car as one reason GM was worth a $40 billion bailout, holding it up as a sign that the bankrupt automaker could and would adapt to the future. The Volt finally went on sale in December 2010, to accolades and jeers. The car was not a big seller, and was soon eclipsed by the Nissan Leaf which sold at a similar price, and Tesla’s Model S (2012) with its 200-mile range and the popular Toyota EV Prius (2016). The Volt's real significance? It gave GM a brand-new manufacturing and engineering platform for electric vehicles, where it had had none before. The small spunky EV literally saved GM.  

“The flexibility and scale are what will unlock our all-electric future," said Andy Oury, a battery engineer for GM. "When we first saw how the architecture started to gel, the portfolio just exploded with diversity.” GM plans to launch 30 new electric vehicles around the world by 2025, most will be  available in North America. The vehicles will span GM's entire brand portfolio, including Cadillac, Buick, GMC, and Chevrolet, and will come in a range of prices.

President Biden's infrastructure bill will speed up GM's move to an all electric line-up. $15 billion is earmarked for EV-related projects including $7.5 billion for EV charging stations nationwide, as well as tax credits and EV subsidies for buyers.  

The narrative from GM executives these days is that in the next five to 10 years, the auto industry will change as much as it has in the past 50. And GM plans on being a leader, despite its current $2 billion headache. 

 

 

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Last modified on Thursday, 23 September 2021 14:51