Trump EV scepticism threatens US$54 billion in South Korean investments

SOUTH Korean companies are reconsidering their US$54 billion investment blitz to build electric vehicle (EV) battery plants in the US over concerns president-elect Donald Trump could undo tax credits for EVs.

Some Korean companies have slowed or hit the pause button on any ongoing construction of some plants because they are concerned about reduced demand for EVs and what Trump would do during a second term in the White House, sources familiar with the matter said, asking not to be identified due to the sensitivity of the issue. Posco Future M, which makes cathodes for General Motors, said in a filing in September that it is delaying the completion of its plant in Quebec due to “local conditions”.

Although companies have not taken any action yet, many are “anxious” about to what degree Trump would slash government incentives for the EV market, said Kenny Kim, chief executive officer at SNE Research, a Seoul-based research firm that focuses on Korean battery makers.

Trump has long criticised President Joe Biden’s efforts to subsidise EVs through his landmark energy bill, the Inflation Reduction Act (IRA). The incoming administration is looking to slash fuel-efficiency requirements and, according to a Reuters report last month, could eliminate the key US$7,500 consumer-tax credit.

Ending hundreds of billions of US dollars in subsidies, tax credits and other incentives would threaten tens of thousands of US jobs and undo years of work shifting the global EV supply chain away from China. It could also hit the earnings of Korean firms, key US partners in the effort to reduce reliance on Chinese suppliers, at a time when they are already suffering from weaker demand for EVs and falling battery prices.

“We are paying attention to every single word from Trump” about EVs, said Byeonghoon Kim, chief executive officer at Ecopro Materials, a supplier of precursor materials for the EV batteries used by Ford Motor and General Motors.

“We have considered the Inflation Reduction Act as a very important issue so far,” Kim said. “If there’s any change in the policy, we may have to change our strategy too.”

The Biden administration last week offered US$7.5 billion to help finance a joint venture between Samsung SDI and Stellantis to create cell manufacturing plants in Indiana. However, the Trump transition team was quick to call the offer into question. Vivek Ramaswamy, one of the two nominated co-chairs of Trump’s soon-to-be Department of Government Efficiency, said in a post on X that the department would scrutinise the facility.

South Korea’s three largest battery makers – Samsung SDI, LG Energy Solution and SK On – have announced 15 battery plants in the US, the most aggressive investment drive of any of the world’s three major battery hubs – China, Japan and South Korea.

Half of the Korean plants were announced after the Inflation Reduction Act was signed in 2022, promising to create more than 20,000 jobs in total, located largely in the so-called “battery belt”, which stretches from Michigan through Ohio and Kentucky to Georgia.

“South Korea has contributed to creating jobs and investments in the Rust Belt,” said Park Tae-sung, vice-chairman at the Korea Battery Industry Association. Having Korean battery suppliers is also beneficial for the US to win in the competition against China-dominated supply chains for EVs, he said, adding the group is in talks with US authorities to lobby to keep the credits.

EV batteries accounted about half of all of the foreign direct investment (FDI) and reshoring from overseas in the US between 2021 and the first quarter of 2024, according to Reshoring Initiative. Korean FDI and reshoring in the US created 20,360 jobs in North America in 2023, more than any other country, the data show.

Cutting tax credits would hit Korean battery companies hard at a time when they are suffering from weaker demand for EVs. Prices of lithium, a key mineral tied to the selling price of an EV battery, plunged nearly 90 per cent from their highs in 2022 due to slower-than-expected adoption of EVs.

LG Energy Solution, a key partner of GM, booked about one trillion won (S$943 million) of IRA credits in its accounts so far this year but analysts expect a net loss for the fiscal year of 2023. SK On, the partner of Ford, also received about 211 billion won in tax credits from the US during the first three quarters, yet still reported an operating loss during the period.

‘Disaster’ for South Korea

Korean companies also worry Trump might allow Chinese battery companies to enter the US. China’s Contemporary Amperex Technology, or CATL, said it will consider building a US plant if Trump opens the door, Reuters reported last month.

The IRA has so far blocked investments from China, asking carmakers to gradually reduce sourcing critical battery minerals from “foreign entities of concern”.

“China’s entry to the US would be a disaster for Korea,” said Park Chulwan, a professor in the car engineering department at Seojeong University. “Chinese battery firms would offer much lower prices.”

Still, some are optimistic Trump will not cut the credits for battery makers given their plants are mostly located in Republican-governed states.  

“I don’t think there’s a high chance they will reduce the benefits in the Inflation Reduction Act,” said Kitae Kim, chief executive officer at SungEel Recycling Park Indiana, a battery recycler under construction in Whitestown, Indiana.

The state of Georgia, home to four SK On plants, will also help Korean companies “maximise their ability to efficiently reach consumers across the country”, Georgia Department of Economic Development Commissioner Pat Wilson said in an e-mail to Bloomberg News.

“The US market is still the most important consumer market in the world,” Wilson said. “Korean companies knew that prior to the Biden Administration, and that fact will not change with the new administration.” BLOOMBERG