[Complete Battery Mastery](18) 'IRA Beneficiary' Electrolyte, a Golden Opportunity to Catch Up with China

Editor's NoteWe are currently in the battery era. Batteries are found in almost everything, including mobile phones, laptops, and electric vehicles. [Complete Battery Conquest] is a section created to easily convey the basics of batteries, their ecosystem, company information, industry trends, and outlook to general readers, students, and investors interested in the battery industry and related companies. We visit you every Saturday.

In the United States, the number of electric vehicle models eligible for tax credits (subsidies) under the Inflation Reduction Act (IRA) has drastically decreased from 43 models in 2023 to 19 models in 2024. This is because, starting in 2024, the IRA regulation requires the use of 'battery components manufactured or assembled in North America' to qualify for electric vehicle subsidies.

The IRA reflects the U.S. government's intention to exclude China from the electric vehicle and battery supply chains. In December 2023, the U.S. government effectively designated almost all Chinese companies as Foreign Entities of Concern (FEOC). (Refer to Complete Battery Conquest Episode 14) As a result, many expect Korean companies competing with China in the global market to benefit indirectly. Among these, the most notable fields are electrolytes and separators.

Electrolytes and separators are classified as 'battery components' under the IRA regulations. From 2024, electric vehicles using Chinese-made battery components will no longer be eligible for subsidies in the U.S.

Lithium salts and additives used in electrolytes are classified as 'critical minerals.' From 2025, subsidies will be excluded if critical minerals from FEOC countries are used, and they must be sourced from the U.S. or countries with Free Trade Agreements (FTA). Accordingly, the use of Chinese-made lithium salts and additives is also expected to be restricted starting next year. Due to the implementation of the IRA, electric vehicle and battery companies face the need to reorganize their electrolyte supply chains.

Until now, Chinese companies have produced about 70% of the world's electrolytes. Domestic companies held only about a 10% market share. Market dynamics are expected to change going forward. As domestic products replace Chinese electrolytes, attention is focused on whether Korean companies can expand their global market share.

Electrolyte, the Pathway for Lithium Ions

Electrolyte serves as the connecting pathway through which lithium ions move between the cathode and anode. It is one of the four core materials of lithium-ion batteries and accounts for about 15% of the total battery cost.

Compared to cathode and anode materials, which determine the battery's power and capacity, electrolytes have received less attention. However, securing high-quality electrolytes is essential to achieve stable battery performance. The role of electrolytes is especially emphasized in next-generation battery materials such as silicon anodes and lithium metal. Research and development of all-solid-state batteries, which replace liquid electrolytes with solid electrolytes, is also active.

Electrolytes mainly consist of lithium salts, organic solvents, and additives. Lithium salts and organic solvents have a relationship similar to salt and water. Lithium salts are also called electrolyte salts. In lithium-ion batteries, since electrolyte salts are dissolved in solvents in liquid form, the terms electrolyte and electrolyte solution are often used interchangeably. By cost, lithium salts account for about 40-50% of the electrolyte cost, solvents about 30%, and additives 20-30%.

Lithium salts must have high ionic conductivity to allow lithium ions to move smoothly and must operate stably under extreme cold or high temperatures. They also need excellent electrochemical properties.

The most commonly used lithium salt is lithium hexafluorophosphate (LiPF6), a compound of lithium, phosphorus, and fluorine. LiPF6 is highly regarded for its superior ionic conductivity, solubility, and chemical stability compared to other materials. Electrolyte companies use LiPF6 as a base and mix it with special electrolytes such as F electrolyte (LiFSI), P electrolyte (LiPO2F2), D electrolyte (LiDFOP), and B electrolyte (LiBOB). These special electrolytes help improve charge-discharge efficiency and extend battery life.

Organic solvents must dissolve lithium salts well to enable smooth lithium-ion movement. They need high permittivity to dissolve lithium salts effectively and low viscosity to facilitate rapid lithium-ion transport. They should have low reactivity with cathode and anode materials and be flame-retardant to prevent easy ignition.

Companies typically use cyclic carbonates as the primary solvent and mix chain carbonates as auxiliary solvents. Cyclic carbonates include ethylene carbonate (EC) and propylene carbonate (PC), while dimethyl carbonate (DMC) is commonly used as a chain carbonate.

Additives are substances added in small amounts to enhance battery life, stability, and performance. They are divided into cathode additives and anode additives.

One important role of electrolytes is to help form the SEI (Solid Electrolyte Interphase) appropriately. SEI is a term frequently mentioned when discussing lithium-ion battery performance.

SEI refers to a thin protective passivation film that naturally forms on the anode surface during the initial charging process. It is formed through chemical reactions between the electrolyte and anode materials. This film facilitates smooth lithium-ion movement and blocks electrons from the anode, preventing further decomposition of the electrolyte.

If the SEI layer is uneven, it hinders lithium-ion flow and degrades battery performance. Excessive SEI formation increases lithium consumption, reducing charge-discharge efficiency and shortening battery life. This issue is especially critical when using highly reactive lithium metal as the anode.

Electrolyte companies mainly use LiPF6 as a base and mix various organic solvents and additives. How they blend solvents and additives reflects their technological capabilities and know-how. Due to the nature of electrolytes, companies often conduct research and development (R&D) in collaboration with battery manufacturers.

China Dominates Over 70% of the Electrolyte Market

The electrolyte market is expected to continue growing alongside the expansion of the lithium-ion battery market. It is estimated that about 1,000 tons of electrolyte are used per 1 gigawatt-hour (GWh) of secondary battery capacity. Market research firm SNE Research forecasts the global electrolyte market size to grow from $9.5 billion in 2022 to $21.5 billion by 2030 (as of March 2023).

Initially, Japanese companies led the electrolyte market in the early days of lithium-ion batteries, but with the rapid growth of China's electric vehicle market, China now leads the market. As of 2022, Chinese companies supply 71.3% of global production, followed by Japan at 15.8% and Korea at 11.9%.

By company, China's Tinci, Capchem, Guotai-Huarong (GTHR), Shanshan, BYD, Japan's Mitsubishi, and Korea's Enchem, Soulbrain, and Dongwha Electrolite form the leading group.

China's Tinci holds the top spot with a 41.8% market share, followed by Capchem and Guotai-Huarong with 13.1% and 9.8%, respectively. Chinese electrolyte companies supply products not only domestically but also to Korean battery companies. Enchem ranks fourth with a 7.1% share, supplying electrolytes to LG Energy Solution, SK On, and China's CATL. Mitsubishi supplies electrolytes to Panasonic and established a joint venture, MU Ionic Solutions, with another electrolyte company, Ube, in March 2020.

Securing a stable supply of LiPF6, the main material for lithium salts, is essential for electrolytes. LiPF6 manufacturing is highly complex, creating a high entry barrier. Historically, Japanese companies supplied most of it, but the landscape changed as Chinese companies established mass production systems.

In China, Tinci and DFD (Duofuduo) supply 31% and 28% of the total LiPF6, respectively (as of 2022). By internalizing LiPF6 production, Tinci maintains its top position in both the Chinese and global electrolyte markets. Capchem sources LiPF6 from DFD.

Enchem has secured a 15% stake in China's DFD, ensuring a stable supply of LiPF6. Since the IRA classifies lithium salts as 'critical minerals,' internalization is necessary. Accordingly, Enchem plans to build a LiPF6 production facility with an annual capacity of 50,000 tons in Saemangeum, in partnership with DFD and Joongang D&M (Joongang Advanced Materials). It will also establish a lithium salt production plant with an annual capacity of 10,000 tons in the U.S.

Domestically, Hwasung is the only company supplying LiPF6. It produces 2,000 tons annually at its Ulsan plant and plans to build an additional 2,000-ton capacity plant in 2024.

Chunbo produces F electrolyte, P electrolyte, D electrolyte, and B electrolyte, which are mixed with LiPF6. Since electrolyte additives are classified as 'critical minerals' under the IRA, the use of Chinese products is expected to be restricted from next year. Chunbo is constructing a large-scale plant in Saemangeum in anticipation of surging demand.

'Fresh Material' Electrolyte, Localization is Key

Electrolytes are prone to deterioration, requiring storage at low temperatures and having a short shelf life. Typically, they must be stored below 25 degrees Celsius after production, with a shelf life of only 3 to 4 months. Additionally, due to fire and explosion risks, storage and transportation are complicated. They must be transported in special containers with refrigeration capabilities, leading to increased logistics costs and production costs.

Therefore, to secure price competitiveness, electrolyte plants are located close to cell production facilities. The ability to supply products promptly near customers has become a competitive advantage for electrolyte companies. This is why localization of electrolyte plants is actively progressing alongside the overseas expansion of domestic battery companies.

Enchem currently owns electrolyte production facilities in the U.S. (Georgia), China (Huzhou and Zaozhuang), and Europe (Poland). Following the IRA implementation, Enchem is focusing on expanding production capacity in North America. It plans to increase its existing 20,000-ton Georgia plant to 40,000 tons and aims to have a total of 300,000 tons of electrolyte production capacity in the U.S. by 2025.

Soulbrain Holdings' U.S. subsidiary, Soulbrain MI, is building a 50,000-ton annual capacity electrolyte plant in Kokomo, Indiana. The company plans to expand production capacity to 100,000 tons by 2025. Electrolytes produced here are expected to be supplied to Star Plus Energy, a joint venture between Samsung SDI and Stellantis. Soulbrain also operates an electrolyte plant in Northville, Michigan, supplying LG Energy Solution and SK On.

Dongwha Electrolyte held a groundbreaking ceremony on June 6, 2023 (local time) for an electrolyte production facility to be established in Clarksville, Tennessee, USA. Photo by Dongwha Corporation

Dongwha Electrolite, a subsidiary of Dongwha Enterprise, broke ground on an electrolyte plant in Clarksville, Tennessee, in June last year. With an annual production capacity of 86,000 tons, it is the largest among Dongwha Electrolite's domestic and overseas plants. The company also operates electrolyte plants in Nonsan, Tianjin (China), Malaysia, and Hungary. Tennessee is home to the second plant of Ultium Cells, a joint venture between LG Energy Solution and GM.

Samsung SDI, Best Driver for Lithium-Ion: Electrolyte, 2020.11.04
KOTRA, Market Trends of Lithium Hexafluorophosphate in China, 2023.5.2
The Elec, Dongwha Electrolite Breaks Ground on Battery Electrolyte Plant in the U.S., 2023.6.7
Edaily, Enchem "Georgia Expansion on Track... Targeting 3.6 Trillion KRW Sales by 2025", 2023.9.12
Enchem Quarterly Report, 2023.11.14
DB Financial Investment, FEOC Announcement, Focus on Electrolytes and Separators, 2023.12.11
Bridge Economy, Soulbrain MI to Have 100,000 Tons Electrolyte Production Capacity in the U.S., 2023.12.19