As electric vehicles (EVs) loaded with Chinese batteries have finally been scratched off the list of EVs that can receive tax credits in accordance with the U.S. Inflation Reduction Act (IRA), voices are growing that the Korean battery industry may enjoy reflective benefits from it. However, a large number of EVs powered by Korean batteries were also excluded from the subsidy list, raising questions.
A total of 19 EV models are eligible for U.S. IRA tax credits in 2024, the U.S. Department of Energy announced on Jan. 2. Specifically, they are two Chevrolet models, one Chrysler model, three Ford models, two Jeep models, one Lincoln model, five Livian models, and five Tesla models.
The figure is a drop of 55.8 percent from 43 models listed at the end of 2023. Industry insiders believe that the vehicles excluded from the tax credit list may have battery components sourced from foreign entities of concern (FEOCs).
Earlier, on Dec. 3, 2023, the U.S. government announced that it will eliminate tax credits for battery components such as separators and electrodes beginning from 2024, and core battery minerals such as nickel, lithium, and graphite beginning from 2025, if they come from FEOCs. It offers a tax credit of up to US$7,500 for electric vehicles that meet battery component and key mineral origin requirements and end up being assembled in the final stage at least in North America.
Notably, all EV models equipped with Chinese batteries were erased from the list. The BMW X5 X-Drive 50e and the Nissan Leaf S and Leaf S Plus, which were eligible for tax credits until the end of last year, will not be able to receive tax breaks starting this year. The X5 X-Drive 50e reportedly uses Chinese CATL batteries, while the Leaf S and Leaf S Plus use Chinese AESC batteries.
“A direct impact on EV prices will land in the automakers but there will be trickle-down benefits for Korean battery makers,” said a battery industry insider. “Chinese batteries will have an uphill battle with Korean batteries as EVs, with Korean batteries that are eligible for tax credits able to enjoy stronger price competitiveness than EVs powered by Chinese batteries.”
About half of the EV models loaded with Korean batteries are also excluded from the tax credit list. Currently 15 Korean battery-powered EV models (four with batteries from LG Energy Solution, two with those from SK on, and nine with those from Samsung SDI) qualify for U.S. tax credits, down 55.9 percent from 34 at the end of 2023. The number of EV models with Japanese Panasonic batteries also dropped to four from six. In addition to the previously announced Model 3 Rear-Wheel Drive (RWD) and Model 3 Long Range, two more models from U.S. automaker Tesla were excluded from the tax credit list. “The exact reason for this is not yet known,” said a battery industry official.
Experts point out that Korean battery makers ought to focus more on battery competitiveness such as localizing battery materials and diversifying supply chains than the IRA itself. Battery industry experts also expect to see a change in EV models that can receive subsidies in the future. In fact, the U.S. Treasury Department explained that some automakers did not fully submit information on EV models eligible for subsidies, so a change may be made in the list in the future.