Korean battery firms to benefit from US IRA guidance

Seen is Hyundai Motor's factory in Indonesia, March 20. Next door, a battery cell plant of HLI Green Power, a joint venture between Hyundai Motor and LG Energy Solution, is being constructed. Yonhap

By Baek Byung-yeul

LG Energy Solution, Samsung SDI, SK On and other Korean companies in the electric vehicle (EV) battery industry are cleared to continue their expansion in the United States, as Washington decided to grant tax incentives when battery materials are processed in Korea, according to industry officials and the government, Sunday.

On Friday, the U.S. Treasury Department issued the Notice of Proposed Rule-Making guidance of the Inflation Reduction Act (IRA), which took effect last August.

According to the detailed guidance, key battery materials such as cathodes and anodes are excluded from the list of battery components, which means battery materials processed in Korea are eligible for tax credits even if the processed minerals are sourced from countries that have not signed free trade agreements (FTAs) with the U.S. The guidance will be effective from April 18.

The announcement eased concerns for Korean companies that source a large portion of their minerals for battery materials from China.

Regarding the announcement, the Ministry of Trade, Industry and Energy said the detailed guidance resolved much of the uncertainties in the domestic battery and material industries.

“President Yoon Suk Yeol has communicated with the United States Trade Representative asking for consideration of the concerns of Korean companies so that they won't suffer in connection with the IRA. The related ministries such as the industry ministry have made their best efforts to reflect our opinions (to the U.S. side) through official channels and consultations,” Industry Minister Lee Chang-yang said.

“The government will continue its active support of our industry to recognize the IRA as a new opportunity and respond actively.”

However, concerns remain, as the Treasury Department said the battery components and materials used in EVs should not be sourced from “Foreign Entities of Concern” from 2024 and 2025, respectively.

Though the Treasury Department didn't specify what entities are included in “Foreign Entities of Concern,” the industry view here is Chinese companies will be included on the list.

Due to concerns that Washington has been trying to restrict import of minerals from China, Korean companies have been diversifying their supply chains for battery materials to other countries such as Indonesia and Argentina.

“It is welcome that battery materials processed in Korea are eligible for tax credits. But the details need to be weighed further and it is also necessary to consider things that are not yet announced,” an official form a domestic battery company said on condition of anonymity.

The Korea Battery Industry Association, representing the country's battery companies, also gave a positive comment on the guidance, saying the details will provide momentum for strengthening the battery alliance between the two countries.

“When anode and cathode materials are processed in Korea, which has an FTA with the U.S., our battery manufacturers will benefit from the IRA because it will be easier to meet the parts and minerals requirements of the guidelines,” the association said. “The requests from the Korean battery industry and the government were reflected in the guidance. This will become an opportunity to achieve a win-win for the two nations.”