Korean battery material, parts, and equipment companies preparing to enter the North American market are turning their eyes to Canada instead of the United States. This is because Korean battery makers such as LG Energy Solution, Samsung SDI, and SK on have proactively announced large-scale investment plans, and tax support and administrative support focus on them. Experts predict that the number of Korean battery makers heading to Canada will increase for the time being as labor costs are relatively low and labor supply is easier than in Korea.
According to industry sources on Oct. 14, major Korean companies currently engaging in the battery business in Canada include LG Energy Solution, POSCO Future M, EcoPro BM, and Solus Advanced Materials. Except for LG Energy Solution’s battery joint venture (JV) plant with Stellantis in Ontario, Canada, the rest are mostly cathode materials plants. POSCO Future M is building a cathode material JV plant in Quebec, Canada in partnership with GM and EcoPro BM with SK on and Ford. Solus Advanced Materials, which acquired a local battery cell factory, is in the process of expanding its production capacity in Canada.
Under the U.S. Inflation Reduction Act (IRA), electric vehicle (EV) subsidy requirements will be gradually tightened. In 2028, EVs must be assembled and produced in the three North American countries to be eligible for subsidies. To achieve this, EV makers should make key battery materials such as cathode materials, electrolytes, and separators in these three countries by 2027. Accordingly, relevant Korean companies are also finalizing sites, preparing to announce blueprints to target the North American market one after another. Most of them preparing to invest in North America are looking at Canada, not the United States, as their potential destinations. In addition to fulfilling U.S. requirements to produce battery materials in the three countries, they can enjoy the Canadian government’s strong tax breaks.
The IRA demands battery materials be produced in the United States, Canada, or Mexico to make them eligible for battery subsidies from the U.S. government. The United States, Canada, and Mexico are the member nations of the New North American Free Trade Agreement (USMCA). The USMCA predates the IRA and emphasizes local sourcing. Only vehicles with at least 65 percent of their parts from the three countries will be able to receive tax incentives in 2024 and those with over 75 percent in 2029. Both Canada and Mexico can provide tax incentives for Korean companies investing in North America. But Korean companies have a stronger preference for Canada due to the size of the incentives guaranteed by the Canadian government and Canada’s relatively better security and environment.
Canada has been chosen not only by Korean companies but by young new European battery companies and Japanese electrification companies, which have been investing at a slower pace than their Korea competitors. Sweden’s Northvolt, a leading European battery brand, announced in September that it will build a 60 GWh factory outside of Montreal, Quebec of Canada. The first phase, a 30 GWh production line, is expected to go live by 2026. Volkswagen Group’s battery subsidiary PowerCo will build a battery plant in Ontario. Japan led by Panasonic and Mitsubishi plans to open a value chain bases in Canada.
“Even though the U.S. territory is large, the United States has only a limited number of places where battery factories can be built,” an industry insider said. “This is because battery makers have to comprehensively check product shipments and labor supply. As the Korean automobile and battery industries have made large-scale investments in advance, they considerably meet demand for attracting manufacturing jobs in the United States and have received significant benefits for meeting demand, which has led latecomers to turn to Canada.”
“New North American and European EV investments are being concentrated in Canada, I think,” said another industry insider. “The Canadian investment frenzy is likely to continue for some time as the country has come into the spotlight as a land of opportunity to lower its dependence on China for battery minerals. This trend will expand to Mexico in the medium to long term.”