Bypassing US IRA
Chinese battery companies have been pushing to establish factories in South Korea one after another. It is a strategy to circumvent regulations under the U.S. government’s Inflation Reduction Act (IRA), analysts say. It is expected that the companies will try to enter the U.S. and European markets by transforming their products into Korean-made ones.
According to sources in the battery industry and Bloomberg on July 31, China’s Ron Bay will invest more than one trillion won to build a precursor plant in the Saemangeum National Industrial Complex in North Jeolla Province. Last week, the company received approval for the plant from the South Korean government. It will build the plant on its own without a joint venture. Construction is expected to begin as early as this year. Once completed, the plant will produce 80,000 tons of precursors annually. Precursors are key materials that account for around 60 percent of the cost of cathode materials for batteries.
The number of joint ventures with Korean companies is also increasing. In March, China’s Geo Linmei (GEM), along with SK Innovation and Ecopro, invested 1.12 trillion won (US$874 million) to build a 50,000-ton-per-year precursor plant in Saemangeum in North Jeolla Province.
In April, LG Chem announced that it will invest 1.2 trillion won to build a 100,000-tons-per-year precursor plant in Saemangeum with China’s Huayu Cobalt.
Huayu Cobalt is considered to be the most active Chinese player in South Korea. It also forged a partnership with POSCO Group. It has established a battery recycling company with POSCO Holdings in Gwangyang, South Jeolla Province. With POSCO Future M, it will build a precursor and nickel smelting plant in Pohang, North Gyeongsang Province. China’s CNGR has also partnered with POSCO to build precursor and nickel smelting plants in Pohang and Gwangyang.
Including other small Chinese companies that import and process nickel and lithium for battery manufacturing, the number of Chinese battery makers that have entered Korea is estimated to be much higher. SE Materials, a lithium hydroxide producer that decided to invest in Saemangeum in September 2022, is a joint venture between Sungil HiTech and a Chinese metallurgical machinery company. Small battery material companies are popping up one after another in areas designated as secondary battery specialization zones, such as Cheongju and Pohang in Korea.
The rush of Chinese battery companies into Korea is a response to the U.S. IRA, analysts say. This is because electric vehicles powered by Korean-made batteries can enjoy tax benefits in the European and American markets through the Korea-U.S. Free Trade Agreement (FTA).
Battery materials from Chinese companies produced in South Korea will be supplied to South Korean battery cell makers -- LG Energy Solutions, Samsung SDI, and SK energy. The batteries end up in EVs from General Motors (GM), Tesla, Volkswagen, and others. In the process, precursors made by Chinese companies can be recognized as Korean-made ones.
The U.S. government has not yet set detailed guidelines for the IRA with regard to battery materials and minerals. For this reason, Korean-Chinese joint ventures are delaying the finalization of their joint venture investment ratios. For example, if the threshold for IRA benefits is set at 30 percent or less of the Chinese companies’ equities, a Korean joint venture will buy the Chinese companies’ shares.
Accordingly, those in the Korean battery industry believe that even if the U.S. government sets the detailed guidelines for the IRA and strengthens regulations, it will have a limited impact on Korean factories in which Chinese companies have invested.