The US government announced tax relaxation for South Korea’s electric vehicle (EV) battery companies on Sunday. As per industry officials and the government, the Korean EV battery companies who are processing battery materials in South Korea will be provided with this relief.
With this announcement, South Korean EV battery companies, especially big players like Samsung SDI (Samsung Display Device), LG Energy Solution, and SK On will be able to expand their roots and secure their place in the American market as well.
The United States Treasury Department released a Notice of Proposed Rule-Making guidance of the Inflation Reduction Act (IRA) three days ago. IRA was a set of federal laws aimed to bring down inflation and deficit in the US economy which came into effect last year.
A thorough account of battery components was provided in the recent guidance among which cathodes and anodes were pulled out. Implying that South Korean battery companies can reap the benefits of tax incentives. This rule applies even if the company sources processed minerals from countries with no FTA, an agreement that allows free trade by loosening restrictions.
According to South Korea’s trade, industry and energy ministry, the new IRA guidance has cured nervousness among EV battery companies in Korea as they source the majority of their minerals from China. In recent times, China has been a subject of question since a large market like the US authority has tough stances against it.
The Korean government has put its best efforts through communication channels with the US so that Korean EV battery makers won’t feel panicked. With the contemporary IRA opportunity in hand, the future seems bright for the Korean camp.
2022 was a tragic year for Korea’s EV battery makers whose global market share ranking dropped from second position in 2021 to third. Last year, in November, battery companies formed partnerships and investments to improve their conditions.
South Korea’s battery union also known as Korea Battery Industry Association (KBIA) has remarked the IRA guidance strengthening force will enrich US and South Korea’s relations. Operating in the US market will be profitable since most of the guidelines are friendly towards Korean companies. The association is also satisfied with the US government’s response to Korean EV battery companies’ concerns.
Via newly issued guidelines many South Korean EV battery makers and distributors will have ease in doing business in parts of the US. However, things are still uncertain for Korea from 2024 onwards due to the “Foreign Entities of Concern” mentioned by the Treasury Department. As per the department, from 2024 and 2025, they won’t allow companies sourcing their materials from foreign entities of concern to operate freely.
It is anticipated that one such entity could be China. It means trouble for Korean EV battery makers. To tackle this possible problem, Koreans have already started to reduce their reliance on China. They are slowly shifting their supply chain to countries like Indonesia.