More Details Coming
The battery industry is on high alert as the guidelines of the U.S. Inflation Reduction Act (IRA), specifically concerning “Foreign Entities of Concern (FEOC),” could be released as early as June. This comes with the apprehension that if major procurement and refining companies for core battery minerals in China are selected as FEOCs, it could be a significant setback for domestic battery companies heavily reliant on China. In the worst-case scenario, finished vehicle manufacturers utilizing domestic batteries could potentially receive only half of the IRA subsidies, raising industrywide concerns.
According to the battery industry on May 30, the U.S. is expected to announce the specifics of the FEOC related to the IRA as early as next month. Previously, the U.S. identified China, Russia, North Korea, and Iran as FEOCs in the IRA white paper announced in December of last year, but individual companies or groups have not yet been designated.
The main concern is that if a substantial number of Chinese mineral procurement and refining companies are designated as FEOCs, it could disrupt the supply chain of domestic battery companies. This year, in fact, the dependence on eight core battery minerals from China by domestic battery companies has reached an all-time high. In particular, given the lack of diversification in the supply chain, it's suggested that finished vehicles equipped with Korean batteries may fail to meet the subsidy conditions set by the IRA.
According to the IRA guidelines announced this year, a total of $7,500 in subsidies will be given for the purchase of electric vehicles if they meet the following conditions: over 50% of battery components produced and assembled within North America, and over 40% of core minerals extracted or processed within North America or countries with a free trade agreement (including Japan). Particularly, for battery assembly, the requirement will gradually increase from 50% in 2023 to 100% in 2029, and for core minerals, the current 40% will increase to 80% by 2027.
Experts predict that securing 80% of core minerals outside China by 2027 is virtually impossible. One industry insider stated, "China's strength lies in the mineral refining sector. They are less concerned about environmental destruction that occurs during the refining process." They added that “Developed countries do not focus on refining because the cost of environmental cleanup is higher. It is practically impossible to replace China.”
Domestic battery companies also cannot rest easy. Although their direct benefits are not from the IRA subsidies but from the Advanced Manufacturing Production Credit (AMPC), they may face challenges in the final stage of battery production if many Chinese companies are included in the FEOC as expected. The AMPC program provides a subsidy of $35 per kilowatt-hour (kWh) for battery cell production within the U.S., and $45 per kWh when modules are also produced.