A scenario analysis has been conducted on the aftermath of the U.S. presidential election, which poses a major risk to the Korean secondary battery industry for electric vehicles which is expected to expand supply in earnest beginning from 2025.
If U.S. presidential hopeful Donald Trump, who has mentioned the abolishment of the IRA, wins the coming presidential election, LG Energy Solution is expected to record operating losses starting from 2025. SK on is expected to remain in the red even after 2026.
The analysis came out in a secondary battery supply and demand diagnosis and risk factor analysis, which was released by Korea Investors Service in an online media day event on March 25.
Excluding the IRA Advanced Manufacturing Production Credit (AMPC) in the United States in 2023, the real profits of Korea’s three battery cell makers were estimated to fall from the previous year due to a slowdown in demand for electric vehicles.
Battery material (cathode material) makers EcoPro BM and POSCO Future M also posted a combined operating loss in the fourth quarter of 2023 due to an increase in inventory valuation losses caused by a sharp drop in the prices of key minerals.
The problem is that Korean companies will complete significant new capacity expansions starting from 2025, as demand for electric vehicles is expected to continue to slow down throughout this year. As a result, Korea Investors Service expects the weak demand for electric cars to continue until 2027.
In addition, competition from China’s expanding supply of low-cost batteries is expected to increase. Due to the expansion of LFP batteries in China, the three major Korean battery makers’ share fell by 1.6 percentage points to 23.1 percent from 24.7 percent in 2023. Excluding the Chinese market, the share falls even further from 53.9 percent to 48.7 percent.
Most of all, Korea Investors Service pointed out that one of the main anxiety factors is a growing policy uncertainty in the North American market, where the penetration rate of EVs is still low at 9 percent. Candidate Trump talked about rolling back the IRA.
“However, even if Trump repeals the IRA, there is a possibility of introducing a policy similar to the IRA, as there are no North American battery companies, and the regions in which EVs are invested are Republican-dominated electoral districts,” said Kim Ho-seop, a research fellow at Korea Investors Service. “We need to pay more attention to the impacts on green policies from Trump’s possible election win rather than the possibility of repealing the IRA.”