Korean battery companies enjoying U.S. special benefits are on high alert for the U.S. presidential election in November next year.
If former President Trump is re-elected, changes in the U.S. environmental policy are inevitable, which will impact Korean battery companies significantly.
Former President Trump has recently stated through personal social media and speeches that he would scrap President Joe Biden’s electric vehicle distribution policy if re-elected. He visited the United Auto Workers (UAW) strike site on the 25th of last month. He claimed that “Biden’s electric vehicle policy is a job-killing policy” and “surrendering the American auto industry to China.”
Former President Trump maintained a negative attitude towards the energy transition policy even during his tenure. He pushed for the fossil fuel-based industry, claiming that “the risks of climate change raised by scientists are fraud.” As a result, the U.S. is considered to have lagged significantly behind in the transition to electric vehicles compared to major auto markets such as China and Europe.
The U.S. electric vehicle industry started up after the Biden administration. The U.S. IRA (Inflation Reduction Act), which occurred last August, includes a tax deduction benefit for electric vehicles and batteries made in North America. Specifically, the U.S. government is giving back up to $45 in cash per 1kWh for battery cells and modules produced and sold in the U.S. by battery manufacturers.
Korean battery companies are enjoying direct benefits from this. L.G. Energy Solution is the company that benefits the most from this system. The company has been operating Ultium Cells, a large-scale battery production plant in the U.S. jointly established with G.M. in 2019, in earnest since 2022.
The tax deduction amount L.G. Energy Solution has received so far exceeds 420 billion won (approximately $357 million), starting with 100.3 billion won in Q1 this year, 110.9 billion won in Q2, and 215.5 billion won in Q3. During this period, the company made an operating profit of 1.7144 trillion won. It earned about 25% of its operating profit by implementing the IRA.
SK On also started operating a battery factory in Georgia, U.S., last year. The amount received was 167 billion won (applied retrospectively for Q1) in Q2, and 209.9 billion won in Q3. Thanks to this, SK On recorded the smallest deficit since its establishment in Q3, with an operating loss of 86.1 billion won. Without IRA benefits, the difficulties would have increased with a loss close to 300 billion won.
The IRA benefits for domestic battery companies are expected to grow over time. This is because they are receiving ‘love calls’ from automakers looking to increase the proportion of U.S. electric vehicle business after Biden took office.
The global battery industry is a competition among three countries: Korea, China, and Japan. Among them, Chinese batteries are virtually blocked from entering the U.S., and Japan makes cylindrical batteries that new companies like Tesla focus on. Existing automakers, making electric vehicles centered on pouches and square batteries, have no choice but to join hands with the three domestic companies.
Cases of strategic alliances being formed are continuing. After announcing the establishment of a North American battery joint venture with Stellantis and Honda last year, L.G. Energy Solution declared this year an expansion of the Rheanz plant to supply batteries to Hyundai Motor Group’s joint venture plant and Toyota.
In particular, it is estimated to be a super-large contract worth 20 to 30 trillion won with a 10-year long-term supply contract with Toyota.
SK On announced the launch of the U.S. battery joint venture ‘BlueOvalSK’ with Ford in July last year. The two companies plan to invest 10.2 trillion won each to build three factories. It also announced the establishment of a battery joint venture plant with Hyundai Motor Group this year.
The annual battery production capacity of the three Ford and Hyundai Motor Group factories, which will start operation in 2025, is 164GWh per year. This is 7.5 times larger than the currently operating SK On Georgia’s factory (22GWh).
Samsung SDI, which currently does not have a U.S. factory, is also building its first U.S. production base. After agreeing to establish the first U.S. factory with Stellantis last year, it promised to establish a second factory this year. The 1st factory with a capacity of 33GWh is scheduled to start operation in the first quarter of 2025, and the 2nd factory with a capacity of 35GWh is expected to start operation in early 2027. It also agreed to operate a joint venture factory with G.M. with a capacity of 30 GWh in 2026.
Samsung Securities and N.H. Investment & Securities estimate that L.G. Energy Solution will earn up to 11.4 trillion won (approximately $9.7 billion) over the next three years from the IRA tax deduction benefits.
This figure considers the expected sales volume based on U.S. battery production capacity and yield and the share of joint venture factories. The IRA tax deduction amount to be returned to SK On during the same period is 6.1 trillion won. Samsung SDI, which will start operating a U.S. factory in 2025, is expected to receive benefits of 1.4 trillion won. The three companies are expected to benefit over 10 trillion won in total in 2026 alone.
The problem is the result of the U.S. presidential election, which is a year away. Former President Trump is pushing for the abolition of the IRA.
Recent opinion polls show that former President Trump is leading. At the end of last month, when The New York Times asked ‘support candidates’ to voters in six states, including Nevada, Georgia, Arizona, Michigan, Pennsylvania, and Wisconsin, five states, excluding Wisconsin, chose former President Trump.
These states are expected to be competitive areas. It was also a place that played a decisive role in the victory in the 2020 U.S. presidential election, with President Biden winning.
However, opinions are divided on whether Trump will completely overturn the ‘Biden electric car policy’ even if he becomes president again. An analysis by local media such as Time suggests that he will not risk withdrawing corporate investments that have already been decided and the risk of lawsuits that follow.
Another point is that U.S. auto companies essentially enjoy the real IRA benefits. Last year, Tesla accounted for about 60% of the U.S. electric vehicle market. Ford and G.M., with only 8% and 5%, are also pushing to expand their electric vehicle lineup.
Biden’s IRA resembles Trump’s ‘America First’ in nurturing domestic industries. Last year, the U.S. government revealed about 40 vehicles eligible for subsidies under the IRA, all of which were models from American companies such as Tesla, GM, and Ford.
Hyundai Motor, a domestic company, receives subsidies only for B2B sales, such as rental cars, but not for consumer models. This is why Hyundai Motor Group is trying to move up the operation time of the U.S. electric vehicle new factory from 2025 to around October 2024 as much as possible.
It is also becoming more difficult for battery companies without domestic alternatives to meet tax deduction requirements. From 2024 to 2025, conditions for procuring battery parts and core minerals (the U.S. or FTA countries, excluding worrying companies) are attached. As a result, the three domestic battery companies are also working hard to convert the supply chain of parts and materials.
A battery industry official said, “We are setting up a step-by-step scenario in preparation for the possibility of a retreat in environmental policy (if Trump is elected).”
By. Kwak Ho Ryong
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