[News Terms] K-Battery on High Alert Over 'IRA Electric Vehicle Tax Credit'

The transition team of President-elect Donald Trump has reportedly announced plans to abolish the electric vehicle (EV) tax credit based on the Inflation Reduction Act (IRA), causing the domestic battery industry to become highly alert. Until now, the Korean battery industry has rapidly increased its market share in the U.S. through subsidy support under the IRA law, but if the Trump administration abolishes the IRA law, a deterioration in profitability will be inevitable.

The IRA law was established to curb inflation in the United States and includes measures such as climate change response, healthcare support, and corporate tax increases. In particular, it contains regulations on changes to the conditions for EV tax credits to expand the adoption of electric vehicles. The core of the law is to provide a tax credit of $7,500 (approximately 10 million KRW) per vehicle for EVs manufactured in the U.S. Subsidies of $35 and $45 per kW are also provided for battery cells and modules produced locally in the U.S., respectively. Introduced during the Biden administration, Hyundai Motor Group and the three major battery companies in Korea have invested tens of trillions of won in the U.S. to meet these standards.

However, a red flag has been raised as the energy policy team within the Trump transition team is reportedly discussing the abolition of the EV tax credit under the IRA. If the EV subsidy is abolished, EV sales will decline, which will impact not only EV manufacturers but also battery manufacturers. Analysts note that the reason battery companies have maintained solid performance despite industry downturns was thanks to the IRA production tax credit (AMPC), and a reduction in IRA benefits could lead to worsening profitability. As these concerns grew, battery company stocks plunged on the domestic stock market on the 15th. LG Energy Solution, Samsung SDI, and POSCO Holdings all fell more than 10% intraday.

The Korea Institute for Industrial Economics and Trade previously stated in its report titled "Risk Analysis of the Korean Battery Industry According to the U.S. Presidential Election Results" that "If changes such as the abolition of the IRA law or reduction of support occur after Trump's re-election, a comprehensive readjustment of large-scale investments made in the U.S. with expectations of future profits will be inevitable," and emphasized that "preparations for this are necessary." It also advised that "support for creating new demand in energy storage systems (ESS), urban air mobility (UAM), electric ships, and related technology development, which can generate future battery demand, needs to be strengthened," and suggested that "expanding tax and subsidy support for battery companies investing domestically should also be considered."