With LG Energy Solution about to go public in January, investors are asking two vital questions. One is, “Should I buy its stocks?” The other is, “But what if there’s another recall?”

These questions are perfectly legitimate, considering the hundreds of millions or billions of dollars LG Energy Solution had to cough up to compensate automakers every time its batteries exploded.

But whether LG Energy Solution is capable of containing recall risks is the wrong question. The right question is, “What are the risks it can’t control?”

In the dark
LG Energy Solution is at a disadvantage in the event of a recall, even if it’s not the company’s fault. That’s because the company can’t access information on what is really happening to its batteries.

Automakers use software called battery management systems to monitor the status of their batteries in real time and adjust their performance. With battery management systems, carmakers can push batteries to their limits and increase driving range. But pushing too hard often leads to fires.

And of course, automakers keep the data they collect from the batteries because sharing does not serve their interests. In other words, even if a battery explodes due to faulty software management, the battery maker has no evidence to prove its innocence.

“LG Energy Solution can’t know how its batteries are managed. Automakers have no reason to share the battery data, which has a monetary value too,” an industry source said.

Simply put, LG Energy Solution can’t flag defective batteries and alert automakers in advance as its access to battery data is denied.

Bad precedent
So far, the company has suffered two major recall crises -- one involving Hyundai Motor and another involving General Motors. LG Energy Solution faces another major recall risk not from its batteries, but from its controversial response to the situation with Hyundai Motor. Investigations showed that LG Energy Solution’s defective batteries caused the fires in both cases, but LG Energy Solution -- together with LG Electronics -- made full compensations only to GM.

This shortsighted strategy saved LG Energy Solution a lot of money in the short term, but set a bad precedent that could play against the company in the long run, experts say.

Lee Ho-geun, a professor of automotive engineering at Daeduk University, says LG Energy Solution set a bad precedent by discriminating among clients.

“To a foreign automaker, GM, LG paid 100 percent of recall costs, but to a domestic carmaker, Hyundai Motor, the company only covered 70 percent of the costs and made Hyundai pay the rest. Using its influence in Korea, LG got a discount from Hyundai,” Lee said.

If there’s another recall in the future, the amount that LG Energy Solution decides to pay will expose how much it values its clients compared with GM, and this could be a liability in building customer relationships, Lee explained.