South Korea warns that China’s dominance in the EV supply chain could lead to the collapse of US subsidies

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China’s Battery Material Control Impacts EV Makers

South Korea has raised concerns about China’s dominance in battery-grade graphite, which could hinder electric vehicle manufacturers from qualifying for subsidies under President Joe Biden’s green tech legislation.

The Inflation Reduction Act aims to exclude “foreign entities of concern,” particularly those linked to Beijing, from the US EV supply chain by January 1, 2025.

Chinese companies currently control over 99% of the global battery-grade graphite market and 69% of the synthetic graphite market for battery anodes.

If battery makers don’t receive an exemption from the FEOC rules to source graphite from Chinese suppliers, EVs may lose eligibility for the tax credits offered by the Biden administration.

South Korean Investments in US Tech Facilities

South Korean companies are investing billions in cutting-edge technology facilities in the US to leverage subsidies for semiconductor and battery manufacturing.

The US recently announced federal subsidies of up to $6.4bn for companies like Samsung Electronics, driving advancements in logic chips and chip technologies.

LG Energy Solution, SK On, and Samsung SDI, fueled by IRA subsidies, are projected to contribute 44% of North America’s battery capacity by 2030.

Concerns Over US Policy Shifts and Competitive Edge

Future US policy changes could disrupt South Korean companies’ operations, especially if elements of the IRA are altered or repealed.

The Korea Semiconductor Industry Association fears that overseas investments by South Korean chipmakers may compromise the country’s chipmaking dominance.

Despite the risks, industry minister Ahn emphasized the need for expanded capacity outside South Korea to meet the rising demand for AI-related hardware.

Adapting to Supply Chain Realignments

Seoul may need to enhance incentives to encourage chipmakers to continue expanding capacity in South Korea amidst nationalist industrial policies adopted by other countries.

Ahn highlighted the opportunity for South Korea to benefit from supply chain reorientations amid escalating US-China tensions by becoming a strategic partner for countries seeking to diversify their trade dependencies.