South Korea’s battery industry has high hopes for details on requirements for US tax credits on electric vehicles to be announced this week as Washington is expected to include minerals from its non-free trade partner countries to be eligible as the sector in Korea heavily relies on ingredient procurements in raw materials.
The US Treasury Department is scheduled on March 30 to announce the draft of the detailed enforcement ordinance on the tax breaks such as how to procure battery minerals and core parts for finished products to meet the requirements for the incentives of up to $7,500 per unit. The US government reportedly plans to finalize the details after 30 days of collecting opinions on the draft.
US President Joe Biden last year signed the Inflation Reduction Act including the tax credit to prop up the local EV sector and diminish China’s power in the global industry for eco-friendly automobiles.
The tax credit is applied to EVs having batteries with more than half their components made in the US or its free trade agreement partners in 2023, according to the law. By 2029, all of the parts must be produced there to benefit. The law also requires 40% of battery raw materials to be procured from the US or its FTA partners in 2023. The bar will be lifted to 80% in 2027.
The law remains ambiguous, however, as it has stipulated only the proportion of key raw materials and components of batteries. It is not yet clear if it excludes batteries with nickel mined in the US or its FTA partners but smelted in China.
South Korean battery industry sources expect the government to widen the mineral suppliers eligible for the incentives and include Indonesia and Argentina, major producers of key battery raw materials such as lithium and nickel. LG Energy Solution Ltd., SK On Co. and Samsung SDI Co. procure those ingredients from the countries.
MINERALS FROM INDONESIA, ARGENTINA?
If Washington makes such a decision, those South Korean battery makers will be able to accelerate their expansion in the US, the world’s third-largest EV market, industry sources in Seoul said.
South Korea has been asking the US to include minerals from Indonesia and Argentina in the battery raw materials eligible for the tax break.
“Our opinion will be significantly reflected as Korean makers may be the only companies that can manufacture products to meet the IRA requirements,” said an industry source in Seoul.
Washington is looking for ways to include Europe in the incentives, according to a media report, adding to hopes that the US will expand the list of battery raw material suppliers eligible for the incentives.
“Ongoing talks between the US and EU could produce an agreement allowing vehicles that include European minerals to qualify for the full extent of the tax breaks,” a senior US administration official was quoted as saying by Politico, a German-owned political newspaper company based in the US.
CATHODE, ANODE
South Korea’s battery material makers such as LG Chem Ltd., POSCO Future M, formerly known as POSCO Chemical Co., and EcoPro BM Co. are keeping an eye out to see if they can benefit from planned subsidies on cathode and anode materials they produce at home.
The IRA added a new advanced manufacturing production credit (AMPC) with respect to “eligible components” produced in the US or a possession. The US government is set to provide $35 per kilowatt-hour (kWh) to battery cells made in the US and $10 per kWh to modules, although the support measures need to be finalized. South Korean battery makers are expected to receive subsidies of billions of dollars a year to be used for production capacity expansion and technology development, analysts said.
Battery material makers will be able to receive subsidies for their products manufactured in South Korea only if the US classifies them as minerals, not components. Washington is poised to provide incentives to battery parts only made in the US but minerals produced by FTA partners including South Korea.
The Treasury Department late last year categorized cathode and anode materials as minerals, but South Korean battery ingredient makers are paying close attention to whether or not the government maintains the classification in the detailed enforcement ordinance.
“Local battery material makers may have to renew earnings forecasts and set up business plans again in accordance with the classification,” said another industry source.
US manufacturers, however, are likely to oppose Washington’s possible move to subsidize products made in South Korea, as it will reduce incentives for facility investment, industry sources said. US politicians have already raised objections to such a subsidiary policy, saying it goes against the basic principle of the IRA, which is to strengthen the supply chain in the US.
Write to Hyung-Kyu Kim and Ik-Hwan Kim at khk@hankyung.com
Jongwoo Chon edited this article.
