S.Korea to raise concerns about EV credits, battery sourcing in U.S. visit

LG

29/08/2022 08:22

By Heekyong Yang and Joyce Lee
    SEOUL, Aug 29 (Reuters) - South Korean officials will meet
U.S. counterparts this week to express "concerns" about the
Inflation Reduction Act, which restricts who can receive U.S.
subsidies for the production of electric vehicles and where
firms can source battery materials.
    President Joe Biden signed into law this month a $430
billion bill, seen as the biggest climate package in U.S.
history.  urn:newsml:reuters.com:*:nL1N2ZS21W
    The law requires that EVs be assembled in North America to
qualify for tax credits, ending subsidies for several EV models,
and that a percentage of critical minerals used in batteries
come from the United States or an American free-trade partner.
 urn:newsml:reuters.com:*:nL1N2ZS28O
    Automakers like Hyundai Motor face short-term competitive
disadvantage to manufacturers of EVs that receive tax credits in
the United States, while industry sources said Korean battery
makers must make changes to mineral sourcing routes, which could
affect cost adversely.
    South Korean officials are expected to tell counterparts
from the U.S. Trade Representative's office and the U.S.
Treasury that the new law may violate trade norms such as the
U.S.-South Korea free trade agreement and the WTO agreement, the
industry ministry said. 
    Korean automakers will consider adjusting production plans
to prioritise the construction of U.S. plants for example, the
ministry said, while battery makers will seek to diversify where
they source minerals from.
    Under new rules to kick in next year, at least 40% of the
monetary value of the critical minerals in batteries will need
to come from the United States or an American free-trade
partner, with that proportion rising to 80% by 2027.
 urn:newsml:reuters.com:*:nL4N3010MC
    Globally, the treatment of some 58% of lithium, 64% of
cobalt and 70% of graphite goes through China, according to
ministry data. 
    
    FALLOUT
    The new rules are a major complication for battery makers LG
Energy Solution (LGES)  373220.KS , SK On and Samsung SDI
 006400.KS , battery industry sources said. 
    South Korea's LGES supplies Tesla  TSLA.O  and General
Motors  GM.N , while SK On and Samsung SDI supply Ford Motor
 F.N  and Volkswagen  VOWG_p.DE  among others. The three battery
makers together command more than a quarter of the global EV
battery market, according to SNE Research. 
    "It's become a huge headache.... Automaker clients said they
didn't expect this new law would take effect this soon," said a
South Korean battery industry source. 
    A second South Korean battery industry source said the
government needed to ask for the United States to delay the
battery sourcing rule as it was going to take a long time to
verify where all the components and minerals came from, let
alone make any changes to sourcing.
    "We don't have many options other than asking the United
States to alleviate the battery component and mineral rules and
to delay the actual implementation," said the second source.
    The sources declined to be identified as they were not
authorised to speak to the media.
    LGES and SK On declined to comment on whether they expect to
meet the requirements by next year. Samsung SDI was not
immediately available for comment. 
    For automakers, analysts said the changes to EV subsidies
would have a limited financial impact because Hyundai
 005380.KS  and Kia's  000270.KS  U.S. EV sales make up a small
percentage of their overall U.S. car sales. 
    Still it represented a set-back, they said.
    "Hyundai is at a disadvantage in the short-term compared to
automakers whose EVs receive credits, as electrification of the
U.S. auto market accelerates," said Meritz Securities analyst
Kim Jun-sung.   
    A Hyundai Motor spokesperson was not immediately available
to comment.

 (Reporting by Heekyong Yang and Joyce Lee; Editing by Ana
Nicolaci da Costa)
 ((joyce.lee@tr.com;))