Korea’s battery giants engineer volatile US gains

Canada Nickel

02/02/2024 02:57

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Katrina Hamlin
       HONG KONG, Feb 2 (Reuters Breakingviews) - The U.S.
electric-vehicle market will be high-energy and volatile for
South Korea’s battery giants. The $67 billion LG Energy Solution
 373220.KS  and compatriot Samsung SDI  006400.KS  are investing
billions to set up factories Stateside, spurred by generous
government grants. But policy risks are rising.
    Thanks to President Joe Biden’s flagship Inflation Reduction
Act in 2022, which provides some $369 billion of subsidies and
loans over 10 years in industries like electric vehicles and
green energy, the U.S. has become an attractive place to set up
shop. LGES was among the first foreign outfits to take
advantage: its $2.3 billion joint venture battery plant with
General Motors  GM.N  began production shortly after the scheme
was enacted.
    Early results look promising. The IRA offers businesses
manufacturing battery cells domestically, like the LGES-GM
venture, $35 per kilowatt-hour produced. All in, the South
Korean group benefited to the tune of 250 billion won ($188
million) in the December quarter, boosting its operating profit
almost fourfold. And payouts from these so-called advanced
manufacturing production credits are expected to rise as LGES
ramps up capacity and builds its supply chain in the United
States. Last year, it announced plans to invest more than $5
billion in Arizona and $3 billion in Michigan for production
facilities. Analysts at Bernstein reckon tax credits at LGES
could surpass 3.4 trillion won by 2026, nearly half of forecast
annual operating profit.
    Rival Samsung SDI is also driving hard into the United
States. Over the past two years it has planned more than $9
billion of investments into three factories with partners
Stellantis  STLA.N  and General Motors  GM.N . The South Korean
duo are hoping American expansion will help them catch up to
China’s CATL  300750.SZ  and BYD  002594.SZ .
    U.S. elections, however, cast uncertainty over the future of
the IRA. Even small changes to the policy, such as tweaking
which entities manufacturers are allowed to source critical
minerals from, would have huge implications to those
diversifying supply chains away from China in order to qualify
for the subsidies. In January, Samsung SDI, for instance, bought
a minority stake in Canada Nickel  CNC.V  in a deal which also
gives the South Korean group the right to purchase a 10% stake
for $100.5 million in a nickel-cobalt mine.
    Moreover, although sales of battery-electric vehicles in the
U.S. grew more quickly than China or the European Union in 2023,
climbing 50% from a year earlier according to Rho Motion, demand
may be starting to cool. GM and Ford Motor  F.N  have both cut
back their EV investment plans.
    Neither LG nor Samsung would want to beat a retreat, with so
much to lose. But the possibility of a policy wobble makes for
an uncomfortable and potentially costly ride.
    Follow @KatrinaHamlin on X
    
    CONTEXT NEWS
    LG Energy Solution on Jan. 26 reported an operating profit
of 338 billion won ($252 million) for the three months to the
end of December, up 43% from a year earlier. Revenue fell 6.3%
to 8 trillion won over the same period.
    LGES noted it benefitted from a 250 billion won Inflation
Reduction Act tax credit effect in the quarter, an increase of
16% from the previous quarter.
    LGES also predicted slowing growth in the global
electric-vehicle market this year. 
    

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Graphic: South Korean battery makers in the US collect IRA
credits    https://reut.rs/3w2gznP
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Editing by Robyn Mak and Nivedita Bhattacharjee)
 ((For previous columns by the author, Reuters customers can
click on  HAMLIN/ 
katrina.hamlin@thomsonreuters.com; Reuters Messaging:
katrina.hamlin.thomsonreuters.com@reuters.net))