South Korea has taken a significant step towards bolstering the battery industry by committing 7 trillion won (approximately $5.32 billion) in financial support to facilitate infrastructure investments by its battery manufacturers in North America. This substantial investment aims to help these companies navigate the challenges posed by the U.S. Inflation Reduction Act.
Government Backing and Financial Support
The government’s support measures encompass a multifaceted approach, including:
1. Reduced Lending Rates and Insurance Premiums: Lending rates and insurance premiums will be lowered by as much as 20%, making it more attractive for battery companies to expand their operations in North America.
2. Increased Loans: Korean firms engaged in battery and material production will benefit from enhanced access to loans, further encouraging their investments in the region.
3. Tax Credits: In addition to loans, the government plans to provide tax credits to incentivize businesses to establish or expand their battery production facilities in North America.
Response to Stricter EV Tax Rules
This initiative comes in response to the U.S. Treasury Department’s recent announcement of more stringent electric vehicle (EV) tax rules. These rules mandate that automakers source a specific percentage of critical minerals for EV batteries from the United States or a U.S. free-trade partner to be eligible for new U.S. federal incentives under the Inflation Reduction Act.
To qualify for a $3,750 credit under the Act, 50% of the value of battery components must be produced or assembled in North America, and 40% of the value of critical minerals must be sourced from the United States or a free trade partner.
Collaboration for Effective Solutions
Trade Minister Lee Chang-yang emphasized the need for collaboration between the government and business leaders to effectively address the rapidly changing landscape following the implementation of the Inflation Reduction Act. During a meeting with major battery cell manufacturers and materials firms, he stressed the importance of finding solutions together.
Strengthening the Battery Supply Chain
In November, South Korea established a government-backed battery alliance with the objective of securing key metals dominated by China, thereby enhancing the stability of the battery supply chain.
South Korea is home to LG Energy Solution Ltd (LGES), Samsung SDI Co Ltd, and SK On, which collectively represent three of the world’s top five EV battery cell manufacturers. These companies command more than a quarter of the global market and supply batteries to prominent automakers such as Tesla Inc, Volkswagen AG, and General Motors Co.
In March, LG Energy Solution Ltd (LGES) announced its intention to restart a previously stalled U.S. battery project, with a substantial $5.6 billion investment in Arizona. This investment aims to meet the criteria for federal incentives provided under the Inflation Reduction Act.
By offering significant financial support, tax incentives, and favorable lending conditions, South Korea is poised to make a substantial impact on the battery industry’s growth in North America, while also aligning with U.S. regulations to support the development of electric vehicles.
