Ambiguous Future
The U.S. Treasury Department announced detailed guidelines for subsidies for electric vehicles under the Inflation Reduction Act (IRA) on March 31 (local time). Many Korean analysts say that the detailed guidelines are not much different from what they expected. However, they are also devoid of specific provisions that directly or indirectly affect Korean battery makers, such as foreign entities of concern (FEOCs) and the advanced manufacturing production credit (AMPC), so some experts say that Korean battery makers need to wait and see what the future will hold.
According to sources in the battery industry on April 2, Korean battery and material companies are paying keen attention to the exact scope of FEOCs, the definition of which was omitted. According to an IRA white paper released in December of last year, the United States banned battery components procured from FEOCs in China, Russia, and Iran, among others, starting in from 2024, and core minerals from 2025.
Initially, Korean battery industry insiders expected specific guidelines on FEOCs to be included in the detailed guidelines. Korean companies mainly procure precursors and graphite, two of the main raw materials for cathode and anode materials, from China, process them and export them to the United States. Depending on which Chinese companies the U.S. government will call FEOCs and which exceptions are recognized, Korean companies may change their mineral procurement strategies. Recently, Korean companies are also diversifying their mineral procurement sources to include Australia, Argentina, and Indonesia, but it is virtually difficult to completely exclude Chinese minerals by the end of 2024. The U.S. Treasury Department previously announced with the Department of Commerce on March 21 that the semiconductor law guide rail regulations defined all Chinese companies as FEOCs.
“Unlike semiconductors, Korean companies are so dependent on China for core minerals for batteries,” a battery industry insider said. “Therefore, it is not easy for Korean companies to address this issue in a short period of time. Due to the purpose of enacting the IRA, Chinese companies are included in the scope of FEOCs. But there is a small possibility of the U.S. government blocking China from accessing core minerals by making equity investment and setting up joint ventures.”
Korean companies do not seem happy with the fact that the United States recognized Japan as a country of origin for key minerals even though the United States has not signed a free trade agreement (FTA) with it. Japan is the first country to have commercialized ternary lithium-ion batteries and Korea is leading the world ternary lithium-ion battery market. As the United States reached out to Japan to exclude China from its battery manufacturing supply chain, Korean companies were forced to compete with Japan in the U.S. market without using its advantages as a country with an FTA with the United States.
Those in the Korean battery industry also regret that the AMPC’s guidelines have not been released. Unlike tax credits to electric vehicle manufacturers, the AMPC is a provision that battery makers are paying the most attention to because the AMPC provides tax credits or cash to battery makers which produce batteries in the North American market. They expect guidelines on the AMPC to come out around April or May, but putting an upper limit on subsidies will inevitably reduce profits for Korean battery makers by that much.