Chinese battery materials companies are increasing their investments in South Korea, with project announcements amounting to at least $4.4 billion this year. The move comes as they aim to comply with new U.S. electric vehicle (EV) tax credit regulations aimed at reducing reliance on China’s supply chains.
Five battery materials plants, valued at approximately 5.6 trillion won ($4.4 billion) in total, have been announced in South Korea this year. These projects involve partnerships between Chinese companies and local partners, including battery firms POSCO Future M and SK On, according to a Reuters review of project announcements.
The investments were prompted by the introduction of the U.S. Inflation Reduction Act (IRA), which mandates that at least 40 percent of the value of critical minerals used in an auto battery must be sourced from the United States or a free trade partner. This requirement makes EV manufacturers eligible for a $3,750 tax credit per vehicle. The IRA is designed to reduce the U.S.’s dependence on Chinese supply chains for electric vehicles.
Moreover, the IRA also includes a provision that will eventually eliminate tax credits if any EV battery components are manufactured by a “foreign entity of concern,” primarily targeting China. As South Korea has a free-trade agreement with the United States, batteries manufactured in the country and used in U.S.-made electric cars could potentially qualify for the federal tax credits.
However, some experts, like Kang Dong-jin, an analyst at Hyundai Motor Securities, warned that setting up South Korea-China joint venture battery firms could become more complex due to the lack of a clear definition of foreign entity of concern from the U.S. Treasury Department.
Despite this uncertainty, Chinese companies have been actively pursuing joint projects with South Korean partners. Ningbo Ronbay New Energy Technology recently received approval from Seoul to expand its South Korea facility’s cathode materials production capacity. Similarly, China’s Zhejiang Huayou Cobalt announced two separate battery materials joint ventures with Posco Future M and LG Chem.
SK On and its supplier EcoPro have also teamed up with China’s Green Eco Manufacture to establish a joint venture focused on battery precursor production in South Korea. Additionally, POSCO Holdings plans to collaborate with China’s CNGR Advanced Material on nickel refining and precursor production in South Korea.
South Korea is a significant player in the EV battery market, home to major battery producers such as LG Energy Solution, Samsung SDI, and SK On. Together, these companies control nearly a quarter of the global EV battery market and supply batteries to all major automakers.