Article Summary –
The US government has allowed tax credits for electric vehicles with batteries containing Chinese graphite until the end of 2026. The US Treasury will give automakers until 2027 to remove certain hard-to-trace minerals, including graphite. South Korea welcomed this decision as it benefits Korean and other global automakers and battery manufacturers, including LG Energy Solution Ltd., Samsung SDI Co. and SK On Co.
US Government Adjusts EV Battery Mineral Policy
The US government has provided more flexibility to automakers concerning battery mineral requirements, permitting electric vehicles (EVs) with batteries containing graphite from China to qualify for tax credits until the end of 2026.
This decision has been positively received in South Korea, home to leading battery manufactures LG Energy Solution Ltd., Samsung SDI Co., and SK On Co. These companies see this adjustment as a victory for both Korean and global automakers and battery manufacturers.
The US Treasury Department recently released the final regulation for consumer EV credits and the final criteria for sourcing battery minerals, specifically those that can’t originate from China. The Treasury will give automakers until 2027 to eliminate difficult-to-trace minerals like graphite from their batteries.
Previously, critical minerals from countries defined as a Foreign Entity of Concern (FEOC), such as China, North Korea, Russia, and Iran, were ineligible for US tax credits stipulated by the Inflation Reduction Act (IRA). Graphite will be temporarily exempted from this rule until 2027.
Understanding the New Treasury Rules
Analysts believe that the new Treasury rules reflect the realities of the global supply chain, as the Biden administration pushes for increased adoption of electric cars in the US. Under the IRA, EV buyers can receive up to $7,500 per vehicle in tax credits, provided the car is assembled in the US and the battery’s minerals are sourced from the US or a country with a free trade agreement with Washington.
The regulations aim to shift the US EV battery supply chain away from China, but meeting strict sourcing requirements has been challenging for automakers and battery manufacturers. Currently, China accounts for 70% of the global graphite output, which is used to make electric battery anodes.
To qualify for US tax benefits, Korean automaker Hyundai Motor Co. and battery manufacturer LG Energy Solution have committed to substantial investments in US plants. LG Energy, the world’s second-largest battery maker, announced last year a $5.6 billion investment to build a battery complex in Queen Creek, Arizona.
South Korea’s Response
Ahn Duk-geun, South Korea’s Minister of Trade, Industry, and Energy, has expressed satisfaction with the US decision, stating that the inclusion of South Korean companies’ positions in US regulations has yielded positive results.
However, Korean automakers and battery firms, as well as their global counterparts, have voiced concerns over the difficulty to find alternative graphite supplies within the IRA timeframe.
Korea has been actively communicating with the US to maximize benefits for South Korean companies since the IRA was enacted in August 2022. In March 2023, Korea also requested a review of the guardrail provisions of the CHIPS and Science Act to ease rules limiting Korean chipmakers’ production capacity in China.
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