New GM Battery Recall Affects Bolt, Bolt EUV Crossover

After the market closed on Aug. 20, GM GM announced another recall to replace batteries for fire risk on the Chevrolet Bolt car and Bolt EUV crossover. This recall is for 2020-22 model years as well as 2019 Bolts not included in previous recalls. In second-quarter 2021, GM recorded an $812 million charge for a Bolt recall for fire risk in 2017-19 model years, and GM estimates an additional $1 billion charge for the Aug. 20 recall. We expect the $1 billion will not be a third quarter special item, so we are lowering our 2021 adjusted diluted EPS to $5.80 from $6.32. The extra $1 billion is not large enough to merit changing our fair value estimate. GM's 2021 total company adjusted EBIT guidance when factoring in the Aug. 20 recall is now $10.5 billion to $12.5 billion, and we model $10.5 billion. When considering Bolt recalls in November 2020 for the 2017-19 model years at an immaterial cost and recalls in July and August 2021, Bolt recalls have now cost GM $1.8 billion, which is not far off from the $2.2 billion annual payout of GM's currently suspended dividend. It also means every Bolt ever made is currently under recall. This sounds bad, but we think GM acting in an abundance of caution after a recent battery fire is necessary for two reasons. GM cannot show it is being careless about safety after the ignition recall switch scandal, and GM is moving to an all-electric future with new fully electric models such as the GMC Hummer and Cadillac Lyriq launching soon, so it must deal with safety risks now to ensure future electric models are safe. GM said this battery fire risk is due to two defects by its supplier LG (a torn anode tab and folded separator in the same cell) and it is pursuing reimbursement from LG. There is no way to definitively know if GM will be successful in that, but we think GM has a decent chance if LG wants more business from an automaker looking to only sell electric vehicles globally by 2035.

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