General Motors (GM) has asked LG Energy Solution to give the U.S. automaker up to 85 percent of the advanced manufacturing production credits (AMPCs) which the Korean automaker will receive through their U.S. battery joint venture, according to industry sources on Nov. 30. This is much more than GM’s 50 percent stake in the joint venture. In exchange, GM reportedly offered to guarantee a certain percentage of the joint venture’s profit margin for LG Energy Solution.
AMPCs are a subsidy in the form of a tax credit for locally produced and sold battery cells (US$35 per kilowatt-hour) and modules (US$10 per kilowatt-hour) in the United States under the U.S. Inflation Reduction Act (IRA). LG Energy Solution began reflecting AMPCs in its operating income this year. The Korean battery giant received 42.67 billion won (US$32.67 million), or 23 percent of its operating profit, through the third quarter. It is expected to receive trillions of won beginning from 2024.
GM and LG Energy Solution each invested half in the joint venture. GM’s demand for as much as 85 percent has caused dismay for some in the battery industry.
In total, the three major Korean battery makers –- LG Energy Solution, SK on and Samsung SDI -- have 11 joint ventures going live in North America beginning from next year. A tug-of-war between automakers and battery companies is expected to intensify as automakers demand AMPC sharing.
AMPCs in the U.S. Inflation Reduction Act (IRA) are the most anticipated return for battery makers that have been aggressively expanding in North America. The AMPC is a de facto direct subsidy from the U.S. government to companies that produce and sell batteries locally. At one point, many battery industry insiders said, “It is a sure-fire way to make money to invest in the battery industry in the United States thanks to AMPCs.” However, things have changed as excessive AMPC sharing pressure from automakers has become a reality.
LG Energy Solution is building or already running two independent factories and six joint ventures in North America. Its confirmed production capacities total 318 GWh. This is the largest among global battery giants. It has invested in three North American joint ventures, half of them with GM. SK on and Samsung SDI building three North American joint ventures with Ford, Stellantis and GM will start volume production sequentially from 2025. Securities firms forecast that AMPCs, which the three Korean battery makers will receive in 2025, will reach 10 trillion won.
The rosy outlook began to take a dark turn in the second half of this year. Japan’s Panasonic, the No. 1 battery maker in the U.S. market, said it would share its AMPCs with its corporate customers – automakers -- and deducted 24.2 billion yen (US$163 million) from its operating profit. The amount is about half of the expected 45 billion yen in AMPCs which the Japanese battery maker is expected to receive in the second quarter of this year.
LG Energy Solution later said it was discussing ways to share AMPCs with automakers. “Since AMPCs are given only when locally manufactured batteries in the United States are installed in EVs and the EVs are sold, automakers will be able to claim their shares,” a Korean battery industry official said. “GM’s demand seems excessive as battery makers have expected that such sharing ratios will be based on joint venture investment ratios.” Other automakers are also expected to demand profit sharing from the three Korean battery makers once production at their joint venture begins next year.
“Referring to Panasonic’s case of sharing 50 percent based on a standalone plant, in the case of a 50-50 joint venture, the carmakers’ share cannot exceed 75 percent,” the official said. If a battery maker gives AMPCs as much as half of its 50 percent stake, the AMPCs will reach up to 75 percent.
“GM’s urgent need to secure a cash flow may be the main reason for this unreasonable demand,” said an auto industry insider. “It seems that GM is trying to get as much AMPCs as possible from its battery joint ventures in order to address its problem of rising costs and shrinking production.”
On Nov. 29 (local time), GM lowered its forecast for net income for the year to between US$9.1 and US$9.7 billion from between US$9.3 and US$10.7 billion. The American carmaker pointed the finger to production disruptions and soaring labor costs due to a prolonged United Auto Workers (UAW) strike. GM is facing an additional US$9.3 billion in salaries through 2028 as part of a wage increase agreement with the UAW.
“In the early days of the Korean battery industry, joint ventures were highly effective for sharing investment risk, but disadvantages such as difficulties in decision-making and unclear accountability will surface as the battery market matures,” the insider said.