[Bojo, Battery] What Will Happen to Korean Batteries if Trump Is Elected?

Trump Seen Leading After First US Presidential Debate
Battery Industry Expected to Suffer Most if Re-Elected
Electric Vehicle and Battery Chicken Game Expected to Accelerate

Threat of Reduced Green Subsidies Like IRA
"US Regional Economies Building Factories Should Be Used as Leverage"

Former President Donald Trump [Image source=Yonhap News]

With the U.S. presidential election, which will determine the profitability of South Korea's electric vehicle and battery industries, just four months away, Donald Trump, who advocates for the repeal of 'eco-friendly policies,' has gained the upper hand. In the recent first U.S. presidential candidate TV debate, President Joe Biden revealed signs of cognitive decline and other 'aging risks,' leading to assessments that a 'Trump comeback' is imminent. The Korean battery industry, which will be most affected, is on high alert.

Consensus: Performance Deterioration Inevitable if Trump Returns to Power

On the 3rd, the Korea Institute for Industrial Economics and Trade (KIET) released a report titled 'Risk Analysis of the Korean Battery Industry According to the U.S. Presidential Election Results,' forecasting that although the Korean battery industry has surpassed Japan to become the number one in the U.S. market due to the effects of the U.S. Inflation Reduction Act (IRA), if former President Donald Trump returns to power, investment contraction and performance deterioration in Korean batteries will occur.

According to KIET's analysis, last year, Korean companies' share of the U.S. battery market rose by 6.2 percentage points from the previous year to 42.4%, surpassing Japan's 40.7% to claim the top spot in the U.S. market. The total production scale of Korean batteries in the U.S. is estimated to increase from 117 GWh last year to 635 GWh by 2027. The report anticipates that if Trump wins the November election and the scale of IRA support is reduced, slowing the adoption of electric vehicles, a comprehensive readjustment of Korean companies' investments in the U.S., which were made expecting future profits, will become inevitable. The report also expressed concerns that the performance of Korean battery companies in the U.S. market would deteriorate under a Trump administration, making it difficult to achieve the expected IRA effects such as increased sales and revenue growth due to IRA battery requirements and the Advanced Manufacturing Production Credit (AMPC).

The Korea Energy Economics Institute also stated in its report 'Impact of the 2024 U.S. Presidential Election on the Domestic Energy Market' (authored by Research Fellow Kang Gu-sang) that Korean battery and electric vehicle companies will inevitably suffer damage. Research Fellow Kang predicted, "If a Trump 2.0 administration is launched and the IRA clean vehicle purchase subsidies are drastically abolished, the price of electric vehicles in the U.S. will rise, leading to a simultaneous decrease in demand for electric vehicles and the batteries used in their production, which could severely impact the sales of Korean battery manufacturers."

However, there is also analysis suggesting that even if Trump is elected, the IRA will not be fully repealed or subsidies drastically cut. According to foreign media such as CNN, about 78% of the total confirmed investment of $346 billion (approximately 480.594 trillion KRW) announced after the introduction of the IRA has been allocated to districts represented by Republican lawmakers. The locations of electric vehicle and battery factories in the U.S. are in relatively less densely populated areas such as Michigan, Tennessee, and Georgia. Many lawmakers from these districts belong to the Republican Party. Since the IRA directly affects the local economy, it is speculated that district lawmakers may not act entirely according to the Trump administration's wishes. For this reason, local media predict, "Rather than a full repeal of the IRA, changes will be made through reductions in R&D support and loan programs, which have relatively less impact on districts, and legislative revisions to guidelines."

KIET stated, "For the seven U.S. states including Michigan, Ohio, and Georgia, where we have made large-scale investments, analyzing the impact of Korean companies' investments on the local economy and using this as leverage in negotiations regarding IRA repeal proposals or new implementation guidelines would be a good approach."

Electric Vehicle and Battery 'Chicken Game' Accelerates... Only the Strong Survive

The U.S. IRA was implemented with the goal of bringing the global center of electric vehicle and battery production to the United States. It provides subsidies for every battery produced and offers a $7,500 (approximately 1.042 million KRW) electric vehicle purchase subsidy if a certain percentage of added value is created domestically. Due to this subsidy policy, the three major North American automakers as well as numerous electric vehicle startups have entered the electric vehicle market. If subsidies are reduced during a Trump 2.0 administration, automakers that have yet to achieve economies of scale and are hesitant about electrification may face higher barriers to entry in the electric vehicle market.

Electric vehicle specialized media TeslaRati cited securities firm Wedbush, reporting the view that "Trump's election could be a positive factor for Tesla." Wedbush expects that if the U.S. electric vehicle battery subsidies are reduced under a Trump return, competitors who have not yet secured business viability are likely to exit, increasing Tesla's market influence. Tesla's per-vehicle sales profit is among the highest in the industry, so even if the Biden administration's policies promoting electric vehicle sales are withdrawn, Tesla would be less affected than other companies. TeslaRati analyzed, "Tesla has already achieved economies of scale, so it can compete without federal tax credits."

This market change applies equally to battery companies. For the three major domestic battery companies that have already invested huge funds to build large-scale factories, subsidy reductions may be a short-term negative but could also be positive in limiting new entrants. Trump's anti-China stance is also expected to be favorable for domestic battery companies.