Will China Compete in the US?… Battery Industry's Top 3 Challenges This Year

Changes in VAT under IRA
① North American Market Opens for China
② Large-Scale Battery Plant Operation Begins
③ Global Economic Slowdown, Electric Vehicles Face Challenges?

[Asia Economy Reporter Jeong Dong-hoon] The three major Korean battery companies have begun to worry about adverse factors such as the global economic slowdown in the new year and subtle changes in the U.S. Inflation Reduction Act (IRA). They are already struggling with internal issues like stabilizing new overseas factories. The year 2023, which seemed to be a green light for the three battery companies, has now turned yellow.

◆ Subtle changes in the U.S. IRA... A gap for China to slip in= The U.S. has postponed the application timing of the IRA battery and critical minerals requirements to March. Additionally, there have been subtle changes in the detailed regulations of the IRA. These changes are unfavorable to Korean companies but relatively advantageous to Chinese companies.

The U.S. Treasury Department presented the direction for establishing battery requirements (minerals and components) in the form of a white paper at the end of last year, to be finalized in March. The white paper states that when calculating the North American manufacturing and assembly ratio for battery components and the extraction and processing ratio of critical minerals in the U.S. and countries with which the U.S. has free trade agreements (FTA), the judgment will be based on the value of the entire components and minerals, not on individual parts or minerals. Originally, it was required to use minerals mined and processed in North America or U.S. FTA countries, but this has been changed to allow use if more than 50% of the added value is created in North America or U.S. FTA countries. Simply put, Chinese companies can supply minerals used in Chinese-made batteries and also participate in battery cell manufacturing.

Chinese companies that were planning to leave North America due to the IRA have quietly returned. Chinese battery maker Gotion High-Tech has established a joint venture with German automaker Volkswagen and plans to invest $2.36 billion (about 3.1 trillion KRW) to build a battery materials factory in Michigan, USA. Ford Motor Company and Chinese CATL are also considering establishing a joint battery production plant in the U.S. Details such as Ford owning 100% of the factory infrastructure and facilities, while CATL manages operations and technology, are under discussion.

Professor Park Cheol-wan of the Department of Automotive Engineering at Seojeong University said, "For example, Tesla has been using LFP (lithium iron phosphate) batteries produced by Chinese companies, and it is difficult to stop using Chinese-made batteries going forward." He explained, "There are many demands from local governments and various industries to relax IRA standards, making it hard to completely exclude China."

◆ Large-scale battery plants commissioning and full operation= The internal challenges faced by the three domestic battery companies are also significant. The key issue is 'yield rate (good product rate).' Even if a battery is developed with long driving range, good output, and safety, it is difficult to sell the product if the factory cannot achieve a yield rate of over 90%. Korean companies operate battery production plants in Europe, North America, China, and Southeast Asia, and plan to build new factories. Each factory produces different types and forms of batteries, requiring considerable effort and time to reduce defect rates. Typically, it takes about one year of commissioning after factory completion and more than 2-3 years to reach normalization.

LG Energy Solution plans to commission its second joint plant with GM in Tennessee, USA, in the fourth quarter of this year. SK On will operate its second standalone plant in Georgia, USA, this year. Samsung SDI will also start operating its second plant located in G?d, Hungary. Professor Park pointed out, "Battery production processes have low automation rates and it is difficult to secure skilled personnel. The competition to maintain good yield rates amid continuous changes in production processes will be intense."

◆ Economic downturn chills the electric vehicle market= The battery industry has grown explosively over the past 2-3 years due to the rapid expansion of the electric vehicle market. However, this year, the global recession is likely to reduce electric vehicle sales compared to before. For example, Tesla's delivery volume in the fourth quarter of last year was 405,278 units, below the Wall Street forecast of 427,000 units. Recently, the situation has worsened to the point of production cuts. Tesla's quarterly sales volume has been an indicator of changes in electric vehicle demand. Battery companies are not immune to the effects of the economic downturn.

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