LG Energy Solution is aiming to have its suppliers burden the cost when the company faces problems such as battery fires, TheElec has learned.
As an incentive for the suppliers, South Korean battery maker is offering long-term contracts to companies that agree to the term.
These contracts also include a term where the suppliers can’t make more than a set margin, sources said.
The suppliers are generally unhappy about this new contract, the sources said.
Some suppliers are “furious” as they have never seen such terms in the industry where they have to burden some of the cost of recall over batteries.
Others are also unhappy that it is a long-term contract as this could mean they could be limited in winning other customers besides LG Energy Solution, they added.
Some suppliers that rely heavily on LG Energy Solution for their revenue have already agreed to the terms, while others with more customers are negotiating over terms, TheElec can confirm.
LG Energy Solution, together with some of its other LG affiliates, had to pay hundreds of millions of dollars for the recalls of its automobile customers Hyundai Motor and General Motors when their EVs caught on fire while using LG’s batteries.
Because the precise cause of some of these fires is unknown, suppliers are saying it is unreasonable for them to burden recall costs when it should be the battery cell company that should be responsible.
LG Energy Solution CEO Kwon Young-soo had previously held top management meetings with the CEOs of its suppliers.
He had asked them to upgrade their equipment while also promising co-growth.
However, the latest decision by LG Energy Solution will put its relationship with its suppliers to the test.
LG Energy Solution could also be aiming to increase its profitability as automobile customers are asking for cheaper batteries while the costs of manufacturing batteries have gone up due to global inflation.