South Korea is planning to invest around $7 billion to help its electric vehicle battery supply chain reduce reliance on China and align more with U.S. trade guidelines.
On Wednesday, the South Korean Ministry of Trade, Industry, and Energy announced that this year it would provide 97 trillion Korean won ($71.4 billion) in national financing to the local electric vehicle battery industry to establish its own supply chain.
The ministry stated that South Korean authorities will continue to ensure the security of critical battery materials so that domestic manufacturers can stay competitive in the U.S. market by meeting the requirements of the U.S. “Reducing Inflation Act.”
This financial assistance includes cheaper national loans and tax incentives, which will help local electric vehicle battery manufacturers to source key minerals from the U.S. and U.S. free trade partners. The funds are also aimed at supporting the development of alternatives to lithium metal batteries or substitutes for graphite, a crucial battery component.
This initiative comes as South Korean electric vehicle manufacturers and battery suppliers aim to comply with the United States’ complex regulations that take a tougher stance on Chinese manufacturers in the electric vehicle industry. One of the key benefits of these rules is tax exemptions in the U.S., which are not available to vehicle manufacturers using key minerals from China.
Last week, the U.S. granted a two-year grace period for auto manufacturers to procure minerals like graphite, allowing them to use Chinese graphite until 2026 and enabling them to start sourcing graphite and other key materials from outside China by 2027, easing South Korea’s concerns.
South Korea’s Ministry of Trade, Industry, and Energy stated that Minister Ahn Duk-geun, in a meeting with local electric vehicle companies and battery manufacturers on Wednesday, expressed that they have gained “two valuable years” to diversify the graphite and other key battery mineral supply chains.
South Korean battery manufacturers such as LG Energy Solution Ltd. and Samsung SDI have been competing to source graphite from outside China, as China tightened its export controls on the material at the end of last year. Posco Future M., a supplier to General Motors, is preparing to import graphite from Africa, described by former CEO Kim Jun-hyung as the “most challenging part” of diversification.
South Korea stated that it will assist businesses in better communicating with countries that have already signed free trade agreements with the U.S. to ensure the security of the supply of key battery minerals.
The Ministry of Trade, Industry, and Energy also mentioned that they will help companies meet new requirements under U.S. regulations, such as submitting plans on how to diversify graphite supply starting from 2027, and accurately assessing the value of battery minerals for benefits.
The Biden administration’s “Reducing Inflation Act” stipulates that the U.S. cannot grant tax incentives to electric vehicles or electric vehicle batteries using key minerals from “concerned foreign entities,” primarily targeting China, which currently dominates the global graphite supply.