Three Reasons Why It's Difficult to Isolate Chinese Batteries Despite the Start of an All-Around Anti-China Alliance

①China Already Dominates the Battery Value Chain... Took 7 Years to Build Mines and Refining Plants
②Domestic and European Markets Are Open and Nearly as Large as North America
③Korean Batteries Partnered with Top 3 US Automakers... 90% of Raw Materials Imported from China

Concerns Over Obstacles to Electric Vehicle Adoption in the US

[Asia Economy Reporter Donghoon Jeong, New York=Special Correspondent Seulgina Jo] The Inflation Reduction Act (IRA) promoted by the United States embodies a strong intention to thoroughly exclude countries competing for hegemony in industrial and security sectors, such as China and Russia. In particular, in the next-generation advanced industry of batteries, there is a strategic move to tighten and isolate China’s global supply chain. However, analysts inside and outside the industry suggest that this strategy is likely to fail. This is because China already controls most of the battery value chain. It is also why Korean companies have no choice but to continue cooperating with China in the battery sector.

◆ China Controls the Battery Value Chain... It Takes 7 Years Just to Build a Refinery = On the 16th (local time), U.S. President Joe Biden signed the IRA, which essentially excludes any electric vehicle battery minerals or components from “concerned countries” from tax credit benefits. Battery minerals such as aluminum, graphite, lithium, and nickel must be mined and processed in countries that have free trade agreements (FTA) with the U.S. or recycled in the North American region to receive up to half of the maximum subsidy ($3,750, approximately 4.91 million KRW). The required ratio to qualify for subsidies starts at 40% next year and must increase to 80% by 2027.

However, industry insiders assess that the impact of the U.S. strategy to isolate Chinese batteries will be localized and limited to North America. The basis for this is that China has absorbed most of the global market from mining to refining and processing of minerals used in batteries. Except for graphite, China does not mine battery minerals domestically but has secured mining rights in major overseas mines in Africa and South America. These minerals are then brought back to domestic factories to produce battery material compounds. The global market share in processing and refining fields reaches 50-70% depending on the material. Neither the U.S. government nor companies can quickly build mining and refining plants in North or South America. According to battery information company Benchmark Mineral Intelligence, it takes about seven years to build mines and refineries producing battery material minerals.

Moreover, there is a large Chinese electric vehicle battery market comparable to North America. Even if China is thoroughly excluded from the North American market, the growth of Chinese electric vehicle companies and the size of the domestic market surpass North America. It is forecasted that the Chinese electric vehicle market will account for about 57% of the global market by 2030.

Another factor making the IRA difficult to succeed is that Korean battery companies, which have partnered with all three major U.S. automakers, cannot be excluded. U.S. automakers such as GM, Ford, and Stellantis continue trillion-won investments locally in North America with domestic battery cell companies like LG Energy Solution, SK On, Samsung SDI, as well as material companies like POSCO Chemical and EcoPro BM. However, most of these companies import raw materials from China. Although they diversify import sources to South America, Africa, and Southeast Asia, their dependence on China is so high that they cannot produce batteries without completely excluding China. According to the Korea International Trade Association, last year, 92.8% of raw material imports for precursors used in cathode materials, such as tungsten oxide, calcium hydroxide, and manganese hydroxide, totaling $1.85081 billion (about 2.18 trillion KRW), were imported from China.

◆ U.S. Electric Vehicles Cannot Run Without Korean Batteries... Korea’s Dependence on Chinese Raw Materials Exceeds 90% = Battery manufacturers continue to form alliances with Chinese companies in research and production fields. China is also evaluated to have well-established research infrastructure related to the battery sector, including numerous institutions and universities.

Regarding the IRA, there is little difficulty in parts since complete battery production plants are being built locally. In the mineral sector, depending on the detailed criteria set for mining, refining, and processing countries, the strategy to exclude and isolate China may vary, but the probability of it ending as a ‘flash in the pan’ is increasing. Professor Jungwan Park of the Department of Automotive Engineering at Seojeong University said, “The U.S. battery sector’s China ‘isolation strategy’ is highly likely to fail,” adding, “From Korea’s perspective, which has high dependence on Chinese raw materials, it is necessary to exert diplomatic efforts to make the detailed regulations favorable or to obtain exceptions.”

Concerns and criticisms from the industry regarding related legislation are also emerging within the U.S. The Alliance for Automotive Innovation (AAI) recently issued a statement criticizing the mineral and battery origin restrictions in the bill, saying, “It will take several years for current vehicles to meet the tax credit criteria.” Since about 70% of existing electric vehicles are designed to be ineligible for incentives, it is pointed out that this will inevitably become an obstacle to the immediate promotion of electric vehicle adoption in the U.S.

Many variables remain as detailed provisions such as origin regulations and ratio application methods have not yet been finalized. Local media expect that specific and clear conditions will only be available in the enforcement decree expected by the end of this year.

U.S. newsweekly Time pointed out, “Manufacturers still face numerous political and financial obstacles to build a U.S.-based supply chain that complies with ‘Made in’ requirements.” However, despite the industry’s cold response, local media report that proponents of the bill argue that the Inflation Reduction Act will enable more consumers to access electric vehicles and help strengthen the domestic supply chain in the U.S.

This content was produced with the assistance of AI translation services.