[Dominating Chinese Battery] Korean Battery Must Solve the Challenge of 'Cooperating with China'

South Korea Secures North American Market Amid US-China Supply Chain Conflict
China's Battery Industry Between Competition and Cooperation
Short-Term Collaboration and Long-Term Supply Chain Diversification Needed

Editor's NoteThe growth of the Chinese battery market is fierce. Based on massive domestic subsidies, China has achieved economies of scale and continuous technological innovation in the battery sector. As a result, it has secured a market share well over half of the global battery market. Even South Korea, which is fiercely competing with China in batteries, is absolutely dependent on China in the minerals and materials sectors. The dependence on China in the materials sector, from mineral raw materials such as lithium and nickel, which are basic raw materials, to precursors (cathode material raw materials), exceeds 80%. We took a closer look at the competitiveness and market situation of the rapidly growing Chinese battery market and the response strategies of Korean companies.

'80% in 2023 → 50% in 2030'

This represents the current dependence on China for key battery minerals and the South Korean government's target to reduce this dependence by 2030. Starting with the Inflation Reduction Act (IRA), our government and companies are rushing to secure battery supply chains including minerals and materials. The government has set a goal to reduce dependence on China to 50% in seven years. Conversely, this means that lowering China's share in the battery supply chain to below 50% is that difficult. Although China and South Korea compete fiercely in the global finished battery market, it is evaluated that cooperation with China, which holds the raw materials and materials at the very bottom of the supply chain, will inevitably continue for the time being.

Battery cooperation between Korean and Chinese companies is close-knit. Since the 2010s, as Chinese companies secured the market for key battery minerals and intermediate materials, a 'honeymoon' began with domestic companies mainly producing finished battery products. Chinese companies supplied minerals and materials to Korean battery companies at low prices by leveraging cheap labor costs, electricity rates, and overseas mining rights. In the battery industry, where lowering costs to increase electric vehicle demand is crucial, the influence of Chinese companies that can supply cheap minerals and materials has grown steadily. Currently, the share of the Chinese battery industry in the global supply chain ranges from 40% to 65%, and its share in the domestic supply chain is around 80%. Because cooperation started early and due to geographical proximity, the domestic supply chain share is relatively higher.

The 'battery partnership' between Korea and China began to show cracks due to the IRA. The IRA stipulates that electric vehicle subsidies cannot be provided if finished battery products produced by Chinese companies, considered a 'country of concern,' or materials refined and processed by Chinese companies are used in parts. Investment in the mineral materials sector, which depended on Chinese companies, has also begun in earnest. Contracts for lithium, nickel, and cobalt supply have been signed with mineral companies in Australia and South America, and companies like POSCO Holdings are purchasing and developing overseas mines to directly mine and process lithium. The U.S. electric vehicle battery market, which is growing rapidly thanks to massive electric vehicle subsidies, is expected to be dominated by Korean companies by about 70% within 2 to 3 years.

Professor Kim Pil-su of the Department of Automotive Engineering at Daelim University said, "Since raw materials do not come from domestic sources, the key is how much we can diversify and strategize global sourcing overseas." He added, "It is important to reduce dependence on China while diversifying and creating our own model through overseas resource development."

Experts generally agree that while efforts to diversify supply chains should continue, cooperation with China must persist for the time being. Demand is increasing significantly due to the rapid rise in mineral prices in recent years and the rapid growth of the electric vehicle market. Securing minerals is becoming increasingly difficult. Therefore, it is necessary to continue collaboration with Chinese companies, which still hold processing source technologies and economies of scale in the minerals and materials sectors. Professor Kim said, "It is impossible to completely exclude China from the supply chain and see it only as a competitor." He added, "Although the market is shaken by the power struggle between the U.S. and China, it is time to maintain a pragmatic attitude to keep a steady center and not miss future growth opportunities."