Chinese and Korean joint ventures are making significant strides in the electric vehicle (EV) battery market, outpacing US efforts to reduce China’s involvement. These partnerships between Chinese and Korean companies allow them to manufacture batteries in Korea and receive generous tax breaks when shipping them to the United States.
The Korea-United States free trade agreement provides an opportunity for batteries manufactured in South Korea and installed in EVs assembled in the US to qualify for tax breaks through the Inflation Reduction Act. However, instead of reducing China’s dominance in the battery supply chain, this move has prompted Chinese companies to collaborate with Korean counterparts to establish battery plants in Korea. According to Bloomberg, Chinese firms and their Korean partners have announced $4 billion worth of investments in battery plants in Korea.
Ningbo Ronbay New Energy Technology Co. is one such Chinese company that plans to produce 80,000 tons of ternary precursors in Korea at a newly built factory. The company specifically chose Korea as its manufacturing base due to the eligibility for US tax breaks. This move highlights the strategic advantage of partnering with Korean companies to leverage the benefits provided by the Inflation Reduction Act.
China currently dominates various segments of the EV battery supply chain, including lithium refining, cobalt sulfate refining, battery cell production, battery cathode manufacturing, battery electrolyte production, and battery separator industries. Chinese suppliers already provide cathodes, anodes, and precursors to major Korean companies like LG Energy Solution, Samsung SDI, and SK On.
The partnership between China and South Korea is mutually beneficial, stated Lee Myung-kyu, an official from the Korea Battery Industry Association. Korean cell makers view importing battery materials such as cathodes and precursors from China as risky, due to the Inflation Reduction Act. By manufacturing these raw materials within South Korea, the country can establish a more stable supply chain.
However, the United States is currently developing rules to regulate the amount of content allowed from Chinese entities in industries of concern. This means that Chinese-Korean joint ventures may face the risk of being excluded from receiving tax benefits at any time. In such a scenario, companies like LG have expressed their intention to buy out joint ventures with Chinese partners, such as Huayou Cobalt.
While the US may want to exclude Chinese firms from EV supply chains, industry experts warn that doing so would hinder the country’s ability to produce EVs. James Oh, the vice president of battery research firm SNE Research, explained that banning Korean-Chinese partnerships could potentially impede US EV manufacturing.
In conclusion, Chinese-Korean joint ventures are making significant progress in the EV battery market, surpassing US efforts to reduce China’s involvement. These partnerships allow Chinese companies to set up battery plants in Korea and take advantage of tax breaks when exporting batteries to the US. While the US is seeking to regulate China’s presence in the EV supply chain, it risks impeding its own EV production if it excludes Chinese firms entirely. The evolving dynamics between China, Korea, and the US highlight the complex landscape of the global EV industry.
