Chinese firms ramp up investment in S.Korea to get US EV tax credits

LG Chem

31/07/2023 08:22

By Heekyong Yang and Zoey Zhang
       SEOUL/SHANGHAI, July 31 (Reuters) - Chinese battery
materials firms are ramping up investment in South Korea,
announcing projects worth at least $4.4 billion this year to try
to meet U.S. electric vehicle (EV) tax credit rules aimed at
lowering reliance on China's supply chains. 
    Five battery materials plants worth about 5.6 trillion won
($4.4 billion) in total have been announced this year by Chinese
companies and local partners in South Korea, including battery
firms POSCO Future M  003670.KS  and SK On, according to a
Reuters review of project announcements. 
    The deals follow the introduction of the U.S.'s Inflation
Reduction Act (IRA), which requires at least 40% of the value of
critical minerals used in an auto battery to be sourced from the
United States or a free trade partner to qualify for a $3,750
tax credit per vehicle. 
    The IRA, designed to wean the U.S. off the Chinese supply
chain for electric vehicles (EVs), will also eventually bar tax
credits if any EV battery components were manufactured by a
"foreign entity of concern", a provision aimed at China. 
    South Korea has a free-trade agreement with the United
States that would likely make batteries manufactured in the
North Asian nation and later installed in U.S.-manufactured
electric cars eligible for the federal tax credits. 
    But Kang Dong-jin, an analyst at Hyundai Motor Securities,
cautioned that setting up South Korea-China JV battery firms
could become more complex, as the U.S. Treasury Department has
not yet provided a concise definition of "foreign entity of
concern" and how it would be applied. 
        That hasn't stopped Chinese companies from setting up a
series of joint projects with South Korean partners. 
    China's Ningbo Ronbay New Energy Technology  688005.SS  said
last week that Seoul had approved its plan to add 80,000 tonnes
in cathode materials production capacity to its South Korea
facility that can currently produce 20,000 tonnes a year. 
    The company said its products produced in South Korea are
compliant with IRA requirements on key minerals and can take
advantage of the benefits of tariff policies applying to exports
to European and U.S. markets. 
    "Chinese firms often sign deals with South Korean battery
makers to diversify their own product portfolios as part of
strategies to alleviate geopolitical risks in light of the IRA,"
a South Korean company official familiar with the matter told
Reuters. 
    The deal follows two separate battery materials joint
ventures China's Zhejiang Huayou Cobalt  603799.SS  announced
this year, one with Posco Future M and another with LG Chem
 051910.KS , which owns battery cell maker LG Energy Solution
 373220.KS . 
    SK On and its supplier EcoPro Co  086520.KQ  also announced
a joint venture with China's Green Eco Manufacture to make
battery precursors in South Korea. 
    POSCO Holdings  005490.KS  said last month it would
cooperate with China's CNGR Advanced Material  300919.SZ  on
nickel refining and precursor production in South Korea. 
    South Korea is home to the world's three big battery
producers - LG Energy Solution, Samsung SDI  006400.KS  and SK
On - which together control nearly a quarter of the global EV
battery market and supply all major automakers. 
    
    ($1 = 1,274.0000 won)

 (Reporting by Heekyong Yang in Seoul and Zoey Zhang in
Shanghai; Editing by Miyoung Kim and Tom Hogue)
 ((Heekyong.Yang@thomsonreuters.com;))