Battery makers see proposed US tax credit repeal as opportunity

A U.S. flag waves at the U.S. Capitol building in Washington, April 28. AFP-Yonhap

Korean electric vehicle (EV) battery manufacturers have denied concerns that their profits may decline further as a result of the United States House Republicans' latest proposals to phase out former Democratic President Joe Biden's clean energy tax credits earlier than scheduled.

Citing the expanded statutory definition of "foreign entity of concern (FEOC)" under the proposed amendment to the Inflation Reduction Act (IRA), manufacturers here claimed that the bill may allow them to gain an upper hand over their Chinese competitors in the U.S. market.

The proposals include a new definition of a "prohibited foreign entity," which refers to a "foreign-influenced entity" or a "specified foreign entity," including companies identified as Chinese military firms operating in the U.S.

According to the proposed amendment, credits will be disallowed to such entities after a two-year grace period. Companies sourcing components and minerals from those entities will also be excluded from subsidies.

"The proposals will strengthen regulations on FEOC including China," a Korean battery industry official said. "Korean companies will be able to enhance their competitiveness based on their continuous efforts to produce batteries in the U.S. and diversify their supply chains."

Another industry official said Ford Motor and Tesla will have no choice but to abandon plans to use China's CATL batteries. The carmakers have tried to circumvent the FEOC guidelines through "licensing cooperation" with the Chinese partner.

"If U.S. carmakers using Chinese batteries are banned from getting tax credits, there will be no reason for them to cooperate with Chinese companies," the official said.

Seen as a follow-up measure to fulfill President Donald Trump's campaign pledges, the push to roll back the previous administration's climate agenda was initially expected to deal a serious blow to LG Energy Solution, SK On and Samsung SDI, because these companies have relied heavily on IRA-backed advanced manufacturing production credits (AMPC) to maintain their profits amid the EV glut.

The Korean battery makers were also expected to suffer from the proposed abolishment of up to $7,500 in subsidies to each buyer of North America-made EVs, as the plan could make those vehicles less affordable. House Republicans seek to terminate the subsidies on Dec. 31, 2026 — six years earlier than originally planned.

However, industry officials argue that the phaseout of AMPC will have only a limited impact on their profits, as the termination is set for Dec. 31, 2031 — just a year earlier than initially scheduled.

Additionally, there is a high possibility that the Senate will reject the House's proposals, given opposition from Republican senators and governors who are concerned the amendment would discourage investment in their districts.