Korean battery makers on high alert as U.S. moves to spike EV subsidies

A U.S. House bill ending EV subsidies by 2027, instead of 2032, has put Korean battery manufacturers, including LG Energy Solution, Samsung SDI, and SK On, on high alert, raising concerns about a stalled EV market. While the bill shortens the Advanced Manufacturing Production Credit (AMPC) only slightly, it also expands restrictions on sourcing components from Chinese suppliers, forcing Korean firms to diversify into sectors like energy storage systems (ESS) and develop cheaper battery technologies to remain competitive; analysts suggest Korean material suppliers may benefit from U.S. trade barriers for Chinese rivals.

Analysis

The U.S. House of Representatives' passage of a tax bill proposing an end to the $7,500 EV tax credit by the end of 2026, six years earlier than the original 2032 deadline, presents significant challenges for Korean battery manufacturers such as LG Energy Solution, Samsung SDI, and SK On. This legislative development, feared since the advent of the current Donald Trump administration, is anticipated to prolong the "EV chasm" by increasing consumer costs from 2027, thereby potentially slowing EV adoption in the U.S. While the bill's shortening of the Advanced Manufacturing Production Credit (AMPC) by only one year, from the end of 2032 to the end of 2031, is viewed as "manageable" compared to earlier fears of a 2028 cutoff that could have cost tens of trillions of won, the expanded Foreign Entity of Concern clause introduces considerable supply chain pressures. This clause necessitates an urgent decoupling from Chinese suppliers, particularly for critical materials like graphite anodes, where China accounts for approximately 90% of global production and all top 10 anode suppliers last year were Chinese companies, according to SNE Research. Posco Future M, Korea's sole mass producer of anode materials, notably slipped from 10th to 11th place. In response, Korean firms are strategically pivoting towards diversifying into non-EV sectors, with a strong emphasis on Energy Storage Systems (ESS). BloombergNEF data shows ESS battery demand grew from one-fifteenth of EV battery demand in 2020 to one-sixth by last year, and Korean companies are noted for ESS manufacturing capability in the United States, reportedly seeing a surge in inquiries. Additionally, there is a heightened focus on accelerating the development of more affordable battery chemistries, such as high-voltage mid-nickel, lithium iron phosphate (LFP), and lithium manganese-rich (LMFP) batteries, to compete with Chinese manufacturers where, as one analyst noted, "price now matters more than performance." New market explorations include humanoid robots and urban air mobility, with LG Energy Solution partnering with Doosan Bobcat and Samsung SDI collaborating with Hyundai Motor and Kia. Analysts also predict Korean material suppliers may benefit from U.S. trade barriers against Chinese rivals, though the bill still requires Senate approval, which most expect to pass without major changes.

Key Decisions for Investors

• Investors should closely monitor the final U.S. legislative outcomes regarding EV subsidies and the Foreign Entity of Concern clause, as these will significantly shape the operating environment and profitability for Korean battery manufacturers in the U.S.
• It is crucial to assess individual firms' diversification progress, particularly into the promising Energy Storage Systems (ESS) market and their speed in developing lower-cost battery technologies to maintain competitiveness amid evolving U.S. EV market dynamics and intensified Chinese competition.
• Carefully evaluate companies' strategies to mitigate Chinese supply chain risks, especially for anode materials, and identify potential beneficiaries among Korean material suppliers who might gain from U.S. protectionist measures, while acknowledging the somewhat mitigated but still present impact of the revised AMPC timeline.