The 'Three-Color Battery Equation' Presented by Korea, the US, and China Amid North America's Electric Vehicle Boom

[Asia Economy Reporter Donghoon Jeong] The implementation of the Inflation Reduction Act (IRA) promoted by the United States is signaling another shift in the advanced industrial sector. The U.S. aims to tighten the supply chain of advanced industries and seize hegemony by isolating 'countries of concern,' while China intends to dominate the global supply chain and engulf the entire industrial ecosystem. Manufacturing powerhouses South Korea and Japan are also targeting the battery industry as a new growth engine and are actively challenging the market.

◆Can electric vehicles run without Korean batteries?= According to industry sources on the 11th, Korean battery companies, which have partnered with the three major U.S. automakers, are expected to produce batteries exceeding an annual capacity of 500 GWh by 2025. Considering that 1 GWh of battery capacity typically produces 15,000 electric vehicles, Korean battery companies will be able to manufacture batteries for approximately 7.5 million electric vehicles annually in North America alone.

Currently, U.S. automakers such as GM, Ford, and Stellantis are continuing trillion-won scale investments in North America with domestic battery cell manufacturers like LG Energy Solution, SK On, and Samsung SDI, as well as material companies such as POSCO Chemical and EcoPro BM.

Korean battery companies are also strengthening collaboration with Japanese automakers, who are leaders in the automotive industry. LG Energy Solution plans to invest a total of $4.4 billion (approximately 5.1 trillion KRW) with Japan’s Honda to establish a battery production capacity of 40 GWh in the U.S. Honda ranked among the top seven global automakers by sales last year, operates 12 production plants in the U.S., and has maintained a 5th to 6th market share in North America over the past decade.

The joint venture between LG Energy Solution and Honda marks the first strategic cooperation between a Korean battery company and a Japanese automaker. Japanese companies typically prefer partnerships with domestic firms they have longstanding relationships with, but LG Energy Solution has surpassed Panasonic, Japan’s largest battery company, to collaborate with Honda. Especially as the U.S. openly pursues a strategy to exclude Chinese battery companies from the North American market, the deepening cooperation between Korean and Japanese companies could influence supply chain diversification in the battery industry. Prior to Honda, LG Energy Solution had already signed battery supply contracts with Nissan and Isuzu, a commercial vehicle specialist.

LG Energy Solution’s global production capacity is projected to increase from 540 GWh to 580 GWh by the end of 2025. The North American share is expected to expand from the current 45% to 49%, signaling a shift in production focus from Europe and Asia to North America.

◆U.S. rushes to exclude China from battery supply chain= The U.S. Inflation Reduction Act includes provisions that completely exclude electric vehicle battery minerals or components from 'countries of concern' from tax credit benefits. The IRA stipulates that battery minerals such as aluminum, graphite, lithium, and nickel must be mined and processed in countries with which the U.S. has free trade agreements (FTA) or recycled within North America to qualify for up to half of the maximum subsidy ($3,750, approximately 4.91 million KRW). The required percentage for subsidy eligibility starts at 40% next year and must increase to 80% by 2027.

Once the law is enforced, key 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 increase from 50% in 2023 to 60% in 2024-2025, 70% in 2026, 80% in 2027, 90% in 2028, and eventually reach 100% thereafter.

The battery sector is a field where the U.S. cannot afford to lose its industrial competitiveness. While electric vehicle batteries currently receive the most attention, the battery industry is inevitably central to the energy and mobility revolution. Batteries will be integrated into most transportation, energy, and home appliance sectors, including ESS (Energy Storage Systems), UAM (Urban Air Mobility), and IoT (Internet of Things). Currently, battery plants 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 secure the battery industry.

◆Global supply chain already dominated by China= Many experts point out that even strategic attempts like the Inflation Reduction Act will find it difficult to dismantle China’s global supply chain in the short term. China already controls most of the battery value chain. The impact of the U.S. strategy to isolate Chinese battery companies is expected to be localized and limited to the North American region.

China dominates the global market from mining to refining and processing of battery minerals. Although China does not mine most battery minerals domestically except for graphite, it has secured mining rights for major overseas mines in Africa and South America. These minerals are then brought to domestic factories to be processed into 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 and companies cannot simply 'snap their fingers' to build mining and refining plants in North or South America. According to battery information provider Benchmark Mineral Intelligence, it takes about seven years to build mines and refining plants for battery material minerals and an additional two to three years to construct 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 as early as next year.

China also has a large 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 by 2030, China’s electric vehicle market will account for about 57% of the global market. According to SNE Research, China’s electric vehicle market grew 167% year-on-year last year, raising the electric vehicle penetration rate to 9%. This is expected to rise to 12% this year and reach 54.89 million units with a 57% penetration rate by 2030.

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