Case study on Hyundai's recall of 82,000 electric cars is one of the most expensive in history

New York (CNN Business)Hyundai will recall 82,000 electric cars globally to replace their batteries after 15 reports of fires involving the vehicles. Despite the relatively small number of cars involved, Hyundai's recall is one of the most expensive in history, signaling how electric car defects could create hefty costs for automakers ? at least in the near future.

The recall will cost Hyundai 1 trillion Korean won, or $900 million. On a per-vehicle basis, the average cost is $11,000 ? an astronomically high number for a recall.

Replacing an entire battery is an extreme measure, requiring a similar amount of work and expense as replacing an entire engine of a traditional internal combustion-powered car. Very few recalls of gasoline powered cars require an entire engine to be replaced. One of the few exceptions was a 2014 recall of 785 of the Porsche 911 GT3 sports cars. Porsche did not release the cost of that recall, but it was certainly more expensive on a per-vehicle basis than this Hyundai recall.

Still, a recall costing more than $11,000 per vehicle is extremely rare. Precise figures are not available because most automakers do not disclose the cost of their recalls.

Because there are so many more gasoline-powered cars on the road than EVs, the total cost of those recalls can easily exceed the $900 million this recall is costing Hyundai. For example General Motors recently took a $1.2 billion charge for the cost of replacing Takata airbags, but that covered 7 million vehicles, meaning the recall cost less than $200 per vehicle. The average cost of an auto recall over the last 10 years was about $500 per vehicle, according to Mike Held, a director in the automotive and industrial practice at AlixPartners, a global consulting firm.

"Overall, battery safety and durability will be increasingly important if auto companies want to avoid some of the large battery-recall costs that have befallen the consumer-electronics industry," he said.

The cost of Hyundai's recall is another indication of just how expensive EV batteries are relative to the cost of the entire car. Until the cost of batteries comes down, through greater production worldwide and economies of scale, the cost of making electric vehicles will remain higher than comparable gasoline cars.

Once batteries do become less expensive, as is expected in the coming years, EVs could become much cheaper to build because they have fewer moving parts and require as much as 30% fewer hours of labor for assembly compared to traditional vehicles.

The fewer parts on the EVs could also mean that recalls should be less common than for internal combustion-powered cars. But in the near term, there could be significant costs if battery fire problems require battery replacements.

Battery fires

No one was injured in any of the Hyundai fires, many of which took place after the cars were shut off and sitting empty. None of the fires took place in the United States. The US National Highway Traffic Safety Administration estimated last October that there are 6,700 electric Hyundai Konas, the US version of the affected vehicles, on American roads.

Hyundai said an investigation into the fires showed the cars' defective LG-made battery cells could short circuit. The recall also covers the Ioniq EV, and Elec City vehicles in South Korea. The recall includes 27,000 Korean vehicles and 55,000 elsewhere in the world.

Fires involving EV batteries are not unique to these vehicles. GM (GM) is also recalling an earlier version its electric Chevrolet Bolt because of fire problems caused by its own LG battery, although a different model than the one triggering the Hyundai recall.

GM is not replacing the batteries in the 68,000 Bolts being recalled globally. Of that total, nearly 51,000 are in the United States. While the automaker isn't saying how its problem will be addressed, it is likely to be handled with a software update.

Tesla (TSLA) also had a problem with battery fires early in its history, but that was tied to road debris kicking up and damaging the batteries. Most EV batteries are installed across the bottom of the car. Tesla dealt with the problem by adding more undercarriage shielding to protect the batteries.

Gasoline or diesel cars also present fire risks, typically after accidents when drivers and passengers are still in the vehicle, posing a greater safety threat.

Hyundai said it is still in talks with battery supplier LG Energy Solutions to determine which company will be responsible for the cost. The Korean Transport ministry seemed to blame LG for the fire problems in its statement on the recall, attributing them to a misaligned battery cell.

But LG's statement, which said it will cooperate with the Korean Transport Ministry's ongoing investigation, denied that was the reason for the fires.

"The fire was not recreated in the lab test, and the issue was an early mass production problem in Hyundai Motors dedicated line," said LG's statement. The company said it "will further strengthen safety in all processes from product plan to manufacture and inspection."

Question

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