'K Battery' Investing 17.5 Trillion Won in the US by 2025 [Biden's Visit to Korea]

LG Energy Solution, SK On, Samsung SDI Invest 17.5 Trillion KRW in Production Facilities
Production Capacity to Exceed 300GWh by 2025
US Battery Industry to Host Major Event

[Asia Economy Reporters Donghoon Jeong, Chaeseok Moon] In line with U.S. President Joe Biden's visit to South Korea, Hyundai Motor Group announced that it will invest 6.3 trillion KRW to establish an electric vehicle (EV) dedicated plant and a battery cell plant in Georgia, USA, creating a new EV production hub. This facility will be Hyundai Motor Group's first EV-dedicated plant in the United States.

Amid the announcement of Hyundai Motor's production base, the three major domestic battery companies have already planned investments exceeding 17 trillion KRW in North America by 2025.

Over 70% of North American Battery Production to be Korean by 2025

According to the three major domestic finished battery manufacturers?LG Energy Solution, SK On (a battery subsidiary of SK Innovation), and Samsung SDI?there are plans to invest up to 17.5 trillion KRW by 2025 to establish seven joint venture factories and four independent factories in North America, including the United States and Canada. Given the active alliances between automakers and battery companies, there is a possibility of new investment plans being announced in conjunction with Biden's visit.

LG Energy Solution leads with 9.9 trillion KRW, followed by SK On with an estimated 6.45 trillion KRW, and Samsung SDI with an estimated 1.15 trillion KRW. Except for LG Energy Solution, the companies have not publicly disclosed their investment amounts, but the figures were estimated based on the production capacity expected by 2025. The industry estimates that investments exceeding 100 billion KRW per annual gigawatt-hour (GWh) are necessary. Joint investments through joint ventures are expected to be split 50-50. Production capacities are projected at 201 GWh for LG Energy Solution, 150.5 GWh for SK On, and 23 GWh for Samsung SDI, respectively.

According to the U.S. Department of Energy (DOE), among the 13 large-scale battery production facilities planned for construction in the U.S. by 2025, 11 belong to the three domestic battery companies. If investments proceed as planned, the share of domestic companies' facilities in total U.S. battery production capacity will expand from the current 10% level to about 70%. Currently, Panasonic, which collaborates with Tesla, holds an overwhelming 83% share in the U.S.

Visitors at 'InterBattery 2022,' a battery specialty exhibition including secondary batteries held in March at COEX, Gangnam-gu, Seoul, are examining a displayed model of a portable energy storage system (ESS). [Image source=Yonhap News]

Impact of USMCA: Over 75% of Auto Parts Must be Produced Locally in the U.S.

The reason 2025 is considered the inaugural year for the North American battery market's full-scale growth is the 'USMCA' trade agreement among the United States, Mexico, and Canada, announced in 2020. USMCA replaces the North American Free Trade Agreement (NAFTA) established in 1994. The most significant feature of USMCA is the increase of the 'Regional Value Content (RVC)'?the percentage of parts produced within the region eligible for tariff exemptions?from the previous 62.5% to up to 75%, thereby strengthening the rules of origin for automobiles. In other words, automakers exporting vehicles to the U.S. must source at least 75% of parts locally by 2025 to avoid tariffs. Since batteries account for 40% of an electric vehicle's weight, failing to source batteries locally makes it difficult to avoid tariffs under USMCA. Local production of battery cells is thus a prerequisite for U.S.-made electric vehicles. After 2025, producing batteries locally will likely become essential for automakers to secure orders.

The three domestic companies have established close cooperative relationships with all three major U.S. automakers?GM, Ford, and Stellantis. Additionally, with Toyota and Volkswagen, the world's first and second largest automakers by market share, confirming plans to build battery plants in the U.S., opportunities for further collaboration with domestic battery companies have increased.

The largest battery plant investment in the U.S. is the joint venture 'BlueOvalSK' between SK On and Ford. They plan to build a battery park with an annual capacity of 43 GWh in Glendale, Kentucky, and a battery plant with 86 GWh capacity in Stanton, Tennessee.

The aggressive investments and new plant establishments by domestic companies are expected to provide jobs and significantly aid economic recovery in the regions around the northeastern U.S. Great Lakes area, historically known as the 'Rust Belt.' By participating in the Biden administration's key initiative to restructure advanced industry supply chains, they will also contribute to revitalizing these underdeveloped areas. The Biden administration has announced an astronomical investment of $170 billion (approximately 192 trillion KRW) for subsidies and infrastructure development to expand electric vehicle adoption. According to SNE Research, this will drive the U.S. electric vehicle market to grow from 1.1 million units this year to 2.5 million units in 2023 and 4.2 million units in 2025, representing an average annual growth rate of 40%.