Unclear Subsidies
LG Energy Solution will seek lithium hydroxide production in Morocco with a Chinese company. Morocco is a country that has signed a free trade agreement (FTA) with the United States. The North African nation also has a logistical advantage as a bridgehead to the European market.
However, if the United States further tightens the details of the Inflation Reduction Act (IRA) to hold China in check, there is a possibility that LG Energy Solution will be ineligible for IRA subsidies from the U.S. government.
LG Energy Solution announced on April 5 that it has signed a business agreement (MOU) with Yahua, a leading Chinese lithium compound manufacturer for production of lithium hydroxide in Morocco. Lithium hydroxide is used as a raw material for high-nickel high-capacity electric vehicle batteries because it is easy to synthesize with nickel, a key raw material for cathode materials.
The more the proportion of nickel grows in a battery, the higher the energy density of the battery rises and the more a car’s mileage on a single charge increases. Therefore, it is important for a battery maker to establish and maintain a stable lithium hydroxide supply chain.
Morocco has FTAs with the United States and the European Union and is close to the Middle East, Africa, and EU markets. The nation can carry out smooth logistics exchanges with neighboring lithium-rich countries.
Yahua, which signed an MOU with LG Energy Solution, is a leading manufacturer of lithium hydroxide in China. LG Energy Solution plans to secure high-quality lithium hydroxide by adding Yahua’s technology to its stable raw material supply chain.
Industry insiders predict that after 2027, the supply of lithium hydroxide will not be able to keep up with demand, resulting in an imbalance between supply and demand. In anticipation of this, LG Energy Solution is pursuing the diversification of its supply chain. For instance, the Korean battery maker inked a contract with Vulcan Energy, a European lithium producer in Germany, to receive 45,000 tons of lithium hydroxide for five years, and secured the supply of 700,000 tons of lithium concentrate for five years from Liontown, Australia. Lithium concentrate is a raw material for lithium hydroxide. SQM, a Chilean company, will supply 55,000 tons of lithium hydroxide and carbonate to LG Energy Solution for nine years under a contract.
However, LG Energy Solution explained that it needs to wait and see the impact of detailed IRA regulations on its promotion of cooperation with Chinese companies. “The IRA’s guidelines are missing details such as restrictions related to battery makers’ cooperation with Chinese companies,” an LG Energy Solution official said.
"We are planning to study and discuss specific details in the future. I don't think that working with China will completely prevent us from selling our batteries to the U.S. market. Moreover, as we will be able to sell our batteries to other countries outside of the United States such as those in Europe and Asia, it will not cause a big problem for us.”