Trillions in Tax Credits at Stake... Eyes on US Midterm Elections

Direction Set for Inflation Reduction Act
Korean Auto and Battery Industries Focused
"Complete Revision Not Possible" Concerns Raised

[Asia Economy Reporters Kiho Sung and Donghoon Jung] Amid the global industrial sector and supply chain restructuring, attention from the domestic automobile and battery industries is focused on the U.S. midterm elections held on the 8th (local time). The election results could determine policy directions such as the Inflation Reduction Act (IRA) and have significant impacts on both domestic and international economies.

◆ Korean Battery Tax Credits in the Trillion-Won Range... Is IRA Still a Great Opportunity?= According to the U.S. Inflation Reduction Act, domestic battery manufacturers are expected to benefit from the ‘Advanced Manufacturing Production Tax Credit (AMPC)’ worth trillions of won within the U.S. Under Section 45X of the IRA’s tax credit provisions, battery manufacturers will receive tax credits of about $35 (approximately 48,541 KRW) per kWh of cells starting as early as next year.

The three major domestic battery companies plan to produce 430 GWh of batteries starting in 2025. Considering this, battery companies could receive up to $15.05 billion (approximately 20.91 trillion KRW) in tax credits annually from 2025. These tax credit benefits will continue until 2032.

Domestic battery companies are expanding their North American ‘battery territory’ through joint ventures with local automakers such as GM, Ford, and Stellantis. LG Energy Solution is building battery plants in North America through joint ventures with automakers. The battery production capacities per joint venture are GM 145 GWh, Stellantis 45 GWh, and Honda 40 GWh. As of September, 70% of the total order backlog of 370 trillion KRW is from North America. SK On is preparing a 150.5 GWh battery plant centered on ‘BlueOvalSK,’ a collaboration with Ford. Samsung SDI also plans to build a 33 GWh battery plant with Stellantis by 2025.

However, due to the joint venture structure, the tax credit amounts that domestic companies will receive are divided, and considering corporate taxes borne by the companies, the actual tax credit benefits may be somewhat reduced. A battery industry insider said, "Although it is difficult to make an exact judgment due to joint investments and incomplete detailed regulations, it is clear that the North American market will experience a boom due to large-scale tax credits."

◆ The Future of the Auto Industry at Stake... Can ‘America First’ Be Changed?= The direction that domestic automakers are closely watching is somewhat different. In the automotive industry, there is hope that if the Republican Party becomes the majority in both the U.S. Senate and House of Representatives, the Inflation Reduction Act, which has been an obstacle to electric vehicle sales, might be amended. However, considering the current strengthening of America First policies, there are also pessimistic views that a full revision of the IRA will not be easy.

The Republican Party’s key figures have already expressed opposition to the IRA. According to foreign media, Senator Lindsey Graham emphasized the need to amend the IRA, and House Republican Leader Kevin McCarthy announced that on the first day of becoming the majority, they would repeal the IRA-related budget. Democratic lawmakers have also introduced a bill to suspend some tax benefits of the IRA.

Within the domestic industry, there are calls for changes to the IRA within this year. Professor Pilsoo Kim of Daelim University’s Future Automotive Department pointed out, "Currently, Korean electric vehicles sold in the U.S. are under contracts made before the IRA was implemented, so they can receive subsidies. However, since the law’s impact will fully take effect in the first half of next year, changes are needed within this year."

Nevertheless, there is a pessimistic view that even after the election, a full revision of the IRA will not be easy. The Bank of Korea, in its ‘Overseas Economic Focus’ published on the 6th, predicted that the Republicans would become the majority but viewed the possibility of law changes as low due to continued America First policies.

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