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South Korea has warned that China’s control over a key battery material will make it nearly impossible for electric vehicle makers to qualify for the subsidy system that is at the heart of President Joe Biden’s flagship green technology legislation.
Biden’s inflation reduction bill aims to eliminate “concerning foreign companies” – including companies with close ties to Beijing – from the US electric vehicle supply chain, with restrictions set to take effect on January 1, 2025.
However, according to consulting firm Benchmark Minerals Intelligence, Chinese companies control more than 99 percent of the global market for battery-grade graphite and 69 percent of the market for synthetic graphite used in battery anodes.
Without an exemption from FEOC rules for battery makers to secure graphite from Chinese suppliers, it is possible that no vehicles will be eligible for the generous tax credits the Biden administration is offering electric vehicle buyers, Ahn Duk-geun said, South Korea’s Minister of Trade, Industry and Energy said the Financial Times.
“Unless they make some kind of exception or transition period, the whole thing.” [EV subsidy] “The regime will collapse,” Ahn said, adding that Seoul had raised the issue with the U.S. Commerce Department. “I think they’re going to try to find a way to somehow accommodate that market reality.”
South Korean companies have already committed to investing tens of billions of dollars in cutting-edge technology facilities in the United States to take advantage of extensive subsidies for semiconductor and battery manufacturing.
The U.S. announced last week that it would provide up to $6.4 billion in federal grants to South Korean tech giant Samsung Electronics, which is investing $40 billion in its Texas facilities for cutting-edge logic chips, advanced packaging and next-generation research and development US dollars will offer chip technologies. SK Hynix, a memory chip manufacturer, is building a modern packaging facility in Indiana.
According to Benchmark, South Korean battery makers LG Energy Solution, SK On and Samsung SDI, all of which received billions of dollars under the IRA, will account for 44 percent of North America’s total battery capacity by 2030.
But he noted that future U.S. administrations could cause “great difficulty” for South Korean companies by amending or repealing elements of the IRA, which Republican presidential candidate Donald Trump has threatened to abolish in favor of increased investment in fossil fuels. Beijing also introduced controls on graphite exports last year.
The Korea Semiconductor Industry Association has expressed concern that South Korean chipmakers’ large investments in the United States could threaten the country’s competitive edge. Its chief executive Ahn Ki-hyun told the FT this month: “We could lose our status as a leading chipmaker company if…” Our companies continue to build factories abroad.”
However, Industry Minister Ahn said additional capacity outside South Korea would be needed to meet booming future demand for artificial intelligence hardware.
“The only big difference of Korean industry from China, the United States or Japan is that we have a small population and a small territory,” he said. “So we can’t produce everything here and some of our companies have to leave.” [overseas] to important markets. We encourage them to do that.”
The industry minister acknowledged that Seoul needs to provide better incentives for chipmakers to continue building more capacity in South Korea as other countries – including the United States – pursue “nationalistic industrial policies.” South Korea’s conservative President Yoon Suk Yeol declared last year that the country was in an “all-out” global “semiconductor war.”
However, Minister Ahn added that realigning supply chains amid rising US-China tensions would benefit South Korea’s traditional strength of trade diversification as other countries seek to reduce their dependence on China and Taiwan.
“If they’re trying to reduce risk in a particular country, they’re going to need new partners,” Ahn said. “We are a perfect partner for countries that are trying to build their own fortress – that is our survival strategy.”