Chinese battery materials firms have been increasing their investments in South Korea to meet the requirements of the United States electric vehicle (EV) tax credit rules and gain access to the U.S. market.
Over the past months, Chinese companies have entered into collaboration projects with South Korean firms to build five battery materials plants valued at up to 5.6 trillion won ($4.4 billion), Reuters reported.
Among the Chinese firms that are investing in South Korea include Ningbo Ronbay New Energy Technology, which aims to raise cathode materials production capacity by 80,000 tonnes in its South Korea facility, and Zhejiang Huayou Cobalt, which collaborated with South Korea’s Posco Future M and LG Chem.
China’s Green Eco Manufacture established a joint venture with South Korean EV battery firm SK on Co. and its supplier EcoPro Co., while Chinese firm CNGR Advanced Material collaborated with POSCO Holdings on nickel refining and precursor production in South Korea.
The companies aimed to meet the U.S. Inflation Reduction Act (IRA), which requires EV batteries to have at least 40 percent of their core minerals sourced from North America or countries with free trade agreements with the United States to qualify for a tax credit.
South Korea has a free-trade agreement with the United States that may allow batteries to be manufactured in South Korea and installed in U.S.-made EVs eligible for federal tax credits.
Chinese firms may view this as a means to access the U.S. market. However, analysts say that Washington’s lack of a clear definition of “a foreign entity of concern” could cause complications in South Korea-China battery materials joint ventures.
The IRA, which was signed into law by the Biden administration last year, is designed to wean the United States off the Chinese supply chain for EVs.
President Joe Biden said reliance constitutes a “national and economic security” threat. To combat it, he released a statement saying that the United States would expand domestic production and transition away from its reliance on China.
US Is the Second Largest EV Market After China
This led to the United States surpassing Germany as the world’s second-largest buyer of electric cars.
The surge in sales was caused by the introduction of EV tax credits of up to $7,500, which has encouraged the domestic car industry to embrace battery-operated cars.
EVs saw huge gains in the last quarter, while combustion engine car sales remained flat, according to Counterpoint.