Electric Vehicle Batteries, Dependence on China Has Increased

Lithium Hydroxide for Secondary Battery Materials
Accounts for 84.4% of China's Total Imports
US Inflation Reduction Act to Take Effect Next Year
Urgent Need to Diversify Raw Materials and Supply Chains

[Asia Economy Reporter Jeong Dong-hoon] With the implementation of the U.S. Inflation Reduction Act (IRA) set to take effect next year, there is an urgent situation regarding the supply of minerals and parts used in North American automobile and battery manufacturing. This year, dependence on China has further increased. As the IRA will be fully enforced starting next year, there is a pressing need to establish countermeasures for raw material and supply chain diversification.

According to the Korea International Trade Association on the 22nd, among the $1.74829 billion (approximately 2.3357 trillion KRW) worth of imports of lithium hydroxide (including lithium oxide and lithium hydroxide), a key material for secondary batteries, from January to July this year, imports from China accounted for $1.47637 billion (approximately 1.9724 trillion KRW), making up 84.4%. Next was Chile with $226.57 million (approximately 302.6 billion KRW), or 13.0%, followed by Russia at $30.29 million (approximately 40.4 billion KRW), or 1.7%.

During the same period, cobalt imports totaled $157.4 million (approximately 210.2 billion KRW), with imports from China reaching $127.44 million (approximately 170.2 billion KRW), accounting for 81.0%. For natural graphite, out of total imports worth $71.95 million (approximately 9.61 billion KRW), $64.45 million (approximately 8.61 billion KRW) came from China, representing 89.6%.

With the IRA enforcement, the required proportion of minerals and parts used in North American automobile and battery manufacturing will gradually increase starting next year. For minerals, the ratio mined and processed in North America or countries with which the U.S. has free trade agreements (FTA) must be at least 40% next year, rising to 80% by 2027. For parts, at least 50% must be produced in North America starting next year, increasing to 100% by 2029.

The problem is that dependence on Chinese imports for key battery resources is steadily rising. The dependence on Chinese imports of lithium hydroxide increased by 18.9 percentage points from 64.9% in 2018 to 83.8% last year. During the same period, cobalt rose by 10.9 percentage points from 53.1% to 64.0%. Natural graphite also increased by 3.8 percentage points from 83.7% to 87.5%, approaching 90% this year.

From January to July this year, lithium hydroxide imports surged by 454.1% compared to the same period last year, driven by a 469.2% increase in imports from China. Korean companies heavily rely on Chinese minerals and parts for battery production, making short-term supply chain shifts difficult. China’s share in the global battery supply chain is also high. According to a report released by the International Energy Agency (IEA) in June, China accounts for 70% and 85% of global cathode and anode material production, respectively. The IEA explained that China has established a monopolistic position at every stage of the battery supply chain. Hong Ji-sang, a research fellow at the Korea International Trade Association, pointed out, "With the expansion of electric vehicle exports, imports of lithium hydroxide from China surged in the first half of the year," emphasizing that "diversifying import sources and alternative production are urgently needed."

Since meeting the IRA requirements is realistically difficult, some expect that related requirements may be relaxed after the U.S. midterm elections in November this year. South Korea and the EU are also strongly opposing the IRA requirements, arguing that they may violate the most-favored-nation clauses of the Korea-U.S. FTA and World Trade Organization (WTO) rules. Cho Cheol, a senior researcher at the Korea Institute for Industrial Economics and Trade, stated, "Although U.S. regulations are progressing rapidly, reducing dependence on China is a mid- to long-term issue that must be resolved."

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