[Battery Turning Point IRA] US Subsidies Available Even When Using Korean-Made Battery Materials

Electric vehicles containing battery materials such as cathode and anode materials produced in Korea can now receive subsidies in the United States. This means that even if local factories are not necessarily built for production, benefits such as subsidies can be obtained by producing in Korea. It is evaluated that the domestic battery manufacturing ecosystem has been partially maintained.

President Biden Riding an Electric Vehicle
Photo by Yonhap News

On the 31st (local time), the U.S. Department of the Treasury announced detailed guidelines for the electric vehicle tax credit under the Inflation Reduction Act (IRA) with this content. The main points are ▲ if 50% or more (gradually increasing to 100% by 2029) of the parts manufactured or assembled in North America are used in the electric vehicle battery ▲ if 40% or more (gradually increasing to 80% or more by 2027) of the critical minerals used in the battery are mined or processed in the U.S. or countries that have free trade agreements (FTA) with the U.S., a subsidy of $3,750 (approximately 4.89 million KRW) can be received for each case. Up to $7,500 (approximately 9.78 million KRW) in subsidies can be received per electric vehicle. These regulations will take effect from April 18.

U.S. Department of the Treasury

The core of this announcement was whether 'battery minerals' such as cathode and anode materials are included and whether adjustments to the Advanced Manufacturing Production Credit (AMPC) would be made.

The Treasury defined battery parts as anode plates, cathode plates, separators, electrolytes, battery cells, modules, etc. However, the 'constituent materials' used to make anode or cathode plates are not included as battery parts.

LG Chem cathode material product. Photo by LG Chem

Key materials such as cathode and anode materials, which account for more than 50% of the battery cost, were defined as 'minerals.' In the case of battery minerals, if materials imported from countries that do not have an FTA with the U.S. are processed in countries that have an FTA with the U.S. and add more than 50% value, subsidies can be received. Korean battery companies import precursors (raw materials for cathode materials) from China to produce cathode materials. With this detailed IRA regulation announcement, it seems that this production system can be maintained for the time being. Additionally, Korean battery companies that secure raw materials such as lithium and nickel from countries that are not U.S. FTA partners, such as Indonesia or Argentina, will be able to stabilize raw material supply more effectively due to this detailed regulation change.

POSCO Future M's Gwangyang Anode Material Plant

The Advanced Manufacturing Production Credit (AMPC) has not had additional conditions or changes to the cap. The IRA provides subsidies (in the form of tax credits) of $35 per kWh for battery cells and about $45 if modules are also produced. The three major domestic battery companies producing large-scale batteries in North America are expected to receive subsidies worth trillions of KRW. LG Energy Solution is estimated to gain operating profits of 470 billion KRW this year, 1.1 trillion KRW in 2024, and 2.2 trillion KRW in 2025 if the tax credit is accounted for as operating income. (Data from Korea Investment & Securities)