Battery packs for 2022 Bolt vehicles go through the production line at a GM plant in Michigan in May.
Steve Fecht for ChevroletThe large Chevy Bolt recall—due to an increased risk of battery fires—has the potential to give electric vehicles a black eye, but investors shouldn’t worry. The recall shouldn’t spell trouble for EV adoption, even if it has become a problem for General Motors stock.
GM (ticker: GM) has recalled, essentially, all the Bolt EVs made over the past few years to fix a defect in their batteries. At $48.50 in premarket trading on Tuesday, GM stock is down about 12% since the second Bolt recall announcement on July 23. The S&P 500 is up about 2% over the same span, while the Dow Jones Industrial Average has added almost 1%.
The third Bolt EV recall was disclosed on Aug. 20. Stock in LG Chem (051910.Korea), which supplied the batteries for those cars, tumbled 11.1% because GM said it would seek money to help pay for the recall. It is expected to cost almost $2 billion.
“Recalls are never good and have always been part of the industry. The ultimate goal is to identify the problem, fix it and get it out of the news,” says Benchmark analyst Mike Ward. “With newer, advanced technologies comes different types of recalls.”
The problem seems to be with the batteries and not with any of the associated systems GM developed. That is the first bit of good news for GM, if any large recall can include good news. What is more, the batteries in question don’t come from GM’s Ultium Cells joint venture, formed between LG Chem and the auto maker. That JV will be overseen by GM, giving it more control over manufacturing.
Deutsche Bank analyst Emmanuel Rosner pointed out in a Tuesday report that GM’s newer cells have different battery chemistry, different manufacturing processes and different form factors than older battery cells. Rosner rates GM stock Buy and has a $68 price target for the shares. “These issues should not carry over,” added the analyst.
RBC analyst Tom Narayan wrote Monday that there are more than 100,000 gasoline engine fires each year. “This affirms our contention that owning captive battery capacity is important and sets apart early leaders of EVs—namely Tesla …VW, and GM.” Narayan covers the European auto industry at RBC, while. Joe Spak covers the U.S. industry, including GM and Tesla (TSLA).
Wall Street doesn’t seem worried about the implications for GM or the EV industry either. Still, some shorter-term recall-related effects are possible. Daiwa Securities analyst Jairam Nathan pointed out in a Monday report that battery incidents could become more common as the EV industry matures. That could lead to higher warranty expenses, pressuring profit margins.
Still, that potential isn’t enough for him to change his thinking about GM stock. He rates shares Buy, with a target of $60 for the price. Nathan calls GM one of the leaders in EV technology.
For now, the issue—for GM and the industry—appears temporary. But GM stock is in the penalty box. The recall has “cast a shadow on the GM story” says Wedbush analyst Dan Ives. “The Street now wants answers to stop the uncertainty around this cascading issue.” When answers that satisfy investors arrive, GM shares should make up some of their lost ground.
Cash from LG Chem wouldn’t hurt either. The negotiations between the Korean firm and GM should occur in the next few days.
Ives rates GM shares Buy. His price target is $85 a share.
Write to Al Root at allen.root@dowjones.com
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