A plan by General Motors and Samsung SDI to spend $3bn on a new US battery plant makes clear South Korean companies’ dominance of the North American EV battery supply chain even in the face of a challenge by their biggest rival, China’s CATL.
Aided by tax credits under US president Joe Biden’s flagship climate legislation, South Korea’s three leading battery companies have made themselves integral to EV manufacturing in the US. Of 22 EV models that the US said this month would qualify for the credits, 17 will receive supplies from LG Energy Solution, SK On or Samsung SDI.
All three South Korean groups have set up joint ventures with US carmakers to produce batteries in North America. CATL, on the other hand, has struck a different kind of deal with Ford, which said in February that it planned to license technology from the Chinese battery maker for a proposed $3.5bn factory in Michigan.
While this will mean foregoing some subsidies available under Biden’s Inflation Reduction Act, the carmaker will benefit from generous state-level subsidies while securing a supply of relatively low-cost batteries — a deal that could reshape the US battery market and undercut some of the ways that South Korean companies have made inroads.
“Through Ford, the Chinese have forced their way back into the US market,” said Tim Bush, a Seoul-based EV battery analyst for UBS. The Ford-CATL deal “is a really negative development for the Koreans”, he said.
The IRA offers billions of dollars in subsidies for batteries that do not rely on Chinese minerals and components. Until February, its provisions appeared in effect to have eliminated Chinese battery makers from the race to take advantage of an expected explosion in demand for EVs in North America over the coming decade.
All three South Korean companies have expertise in so-called nickel-manganese-cobalt (NMC) batteries, which are more expensive but have better range and performance than the cheaper lithium iron phosphate (LFP) batteries in which Chinese battery makers specialise.
Experts have said this makes NMC better suited to the US, where the average consumer is wealthier and more likely to drive further than in China.
However Ford’s decision to license LFP technology from CATL suggests a willingness to risk the wrath of policymakers in Washington in order to secure a supply of low-cost batteries for mass-market models.
The Michigan-based company will also benefit from part of the legislation that allows vehicles sold through leasing schemes — as opposed to being sold directly to customers — to circumvent some of its requirements.
Ford had “fallen far behind General Motors in terms of securing IRA-compliant battery materials”, said Bush. “So instead it has found a workaround that allows it to bypass the requirements.”
South Korean manufacturers are familiar with LFP technology. Last month LG Energy Solution, the world’s second-largest producer of EV batteries behind CATL, announced a $5.5bn investment in a manufacturing complex in Arizona, $2.3bn of which will be allocated to a plant producing LFP batteries. LGES has said it is in “active discussions” to supply Tesla.
Although the LFP part of LGES’s investment is to make batteries for energy storage, experts said it also gave the company the option to produce LFP batteries for EVs in the US.
Yet pivoting to the mass production of LFP in the US is not straightforward.
“China has honed its LFP skills for decades,” said Sun Yang-kook, professor of energy engineering at Hanyang University in Seoul. “Korea will now have to go through trials and errors with LFP production.”
It remains unclear whether the Ford-CATL deal will come to fruition. Last month, Republican US senator Marco Rubio introduced legislation designed to prevent Ford from receiving any IRA tax credits for vehicles produced using Chinese technology.
But if it is successful, the emergence of a rival model to the joint ventures preferred by the South Korean groups — and Japan’s Panasonic — threatens to undermine the leverage of non-Chinese companies when negotiating with carmakers tempted by licensing arrangements for cheaper batteries.
Analysts stress that the South Korean battery makers remain well-placed for rapid growth in western EV markets. This week, on the eve of a visit to the US by South Korean president Yoon Suk Yeol, Hyundai announced that it would invest $5bn in a US battery plant with SK On.
“Korean battery makers have strong technologies, big capacity in major markets to secure scale, and well-established relationships with global car manufacturers,” said Hwang Kyung-in, a research fellow at the Korea Institute of Industrial Economics & Trade.
South Korean battery makers must also contend with lingering uncertainties surrounding the IRA’s implementation.
Last month, the US Treasury issued guidelines that will make it easier for South Korean companies to source critical minerals for batteries from a wider range of countries, and to produce more components in South Korea itself.
Washington is yet to spell out how it will define the “foreign entities of concern” that it wants phased out of the US battery supply chain — a thinly veiled reference to China that will determine South Korean companies’ ability to work with Chinese partners.
Last week, LGES’s parent company LG Chem announced a memorandum of understanding with China’s Huayou Cobalt to set up a joint venture for a Won1.2tn ($915mn) plant in South Korea to produce precursors, a material used to make battery cathodes.
“The question is what level of equity stake in these kinds of partnerships constitutes Chinese ownership or control in the eyes of the US government,” said Bush. “We don’t yet have an answer, but it will have implications throughout the supply chain.”
