Can the US Also Seize 'Battery Hegemony'? Long-Term Goal but Short-Term Remains a Question Mark

[Asia Economy Reporter Jeong Dong-hoon] The implementation of the Inflation Reduction Act (IRA), officially enacted by U.S. President Joe Biden's signature, signals another war in the advanced industrial sector. The intention is to isolate China and Russia, tighten the supply chain of advanced industries, and seize hegemony. The battery industry is a particularly prominent field where this U.S. determination is evident.

According to industry sources on the 20th, the IRA includes provisions that completely exclude tax credit benefits if electric vehicle battery minerals or components come from "concerned countries." The IRA specifies that battery minerals such as aluminum, graphite, lithium, and nickel must be mined and processed in the U.S. or countries with which the U.S. has a Free Trade Agreement (FTA), or recycled in North America 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.

Once this law is enforced, major battery components such as cathode materials, anode materials, and electrolytes must be manufactured or assembled in North America to receive half of the subsidy. The U.S. domestic manufacturing ratio must rise from 50% in 2023 to 60% in 2024-2025, 70% in 2026, 80% in 2027, 90% in 2028, and 100% thereafter.

◆ The Value Chain Already Dominated by China... Why the U.S. is Rushing=The battery sector is also a field where the U.S. cannot afford to lose its industrial competitiveness. Although only electric vehicle batteries are currently in the spotlight, batteries are expected to become a central industry amid the energy and mobility revolution. Batteries will be integrated into most vehicles, energy, and home appliance sectors, including ESS (Energy Storage Systems) used for storing and supplying eco-friendly energy, UAM (Urban Air Mobility), and IoT (Internet of Things). Currently, battery factories are being constructed in the U.S. through joint ventures between automakers and battery companies with investments worth tens of trillions of won. The U.S. appears to have positioned the IRA as a long-term strategy to avoid losing the battery industry.

However, there is growing criticism that the U.S. "China battery isolation" strategy will be difficult to succeed in the short term because China already dominates most of the battery value chain. The impact of the U.S. strategy to isolate Chinese batteries is expected to be localized and limited to the North American region.

China dominates 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 to domestic factories to produce battery material compounds. China's global market share in refining and processing ranges from 50% to 70% depending on the material.

The U.S. government or companies cannot simply "snap their fingers" and 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 refining plants producing battery material minerals and 2-3 years to build battery factories. This means it will take considerable time for the U.S. to secure the battery supply chain from mining to refining, yet the IRA imposes stringent standards starting next year.

There is also 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. According to SNE Research, last year China's electric vehicle market grew 167% year-on-year, raising the electric vehicle penetration rate in China to 9%. It is expected to rise to 12% this year and reach 54.89 million vehicles with a 57% penetration rate by 2030.

◆ U.S. Electric Vehicles Cannot Run Without Korean Batteries=It is impossible to exclude Korean battery companies that have partnered with all three major U.S. automakers. U.S. automakers GM, Ford, and Stellantis continue trillion-won scale investments in North America with domestic battery cell companies such as LG Energy Solution, SK On, Samsung SDI, as well as material companies like POSCO Chemical and EcoPro BM. However, most Korean battery companies import raw materials from China. Although they are diversifying import sources to South America, Africa, and Southeast Asia, their dependence on China is so high that they cannot manufacture batteries without completely excluding China.

According to the Korea International Trade Association, last year the import value of raw materials such as tungsten oxide, calcium hydroxide, and manganese hydroxide used in precursors for cathode materials was $1.99512 billion (about 2.35 trillion KRW). Of this, 92.8%, or $1.85081 billion (about 2.18 trillion KRW), was imported from China. The dependence on China for other cathode materials like cobalt oxide and key anode material artificial graphite was 63.9% and 67.0%, respectively. The dependence on China for separator raw materials, one of the three major battery materials, also reached 60.8%.

Moreover, battery manufacturing companies continue strategic 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's provisions on parts, since finished product manufacturing plants are being built locally, there is no major difficulty. In the mineral sector, depending on the detailed criteria set for mining, refining, and processing countries, the China isolation strategy may take different paths, but the likelihood of it ending as a "flash in the pan" is increasing.

Professor Park Cheol-wan of the Automotive Department at Seojeong University said, "The U.S. battery sector's China 'isolation strategy' has a high possibility of failure," 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 from the U.S."

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