Why Korea shouldn't let its guard down on 2-year grace period of IRA

Korean battery makers are eying a pivot away from graphite in a bid to untether themselves from China-dominated supply chains.

A Tesla car charges at a Tesla Supercharger in Petaluma, California on May 2. LG Energy Solution supplies batteries to Tesla. [AFP/YONHAP]

[NEWS ANALYSIS]

Despite the U.S. government’s recent two-year grace period for compliance with its Inflation Reduction Act (IRA), Korean battery makers are still saddled with the daunting task of ditching Chinese supply chains while protecting themselves amid dwindling demand for EVs.

Practically, two years may be too tight to find alternatives, as China dominates up to 90 percent of certain battery materials such as graphite.

Earlier this month, the U.S. Energy Department announced that batteries with certain minerals that originated in China were eligible for up to $7,500 in tax credits by 2027, reversing its previous stance of restricting the benefit starting Jan. 1, 2025. The extension of eligibility affects "impracticable-to-trace” minerals like graphite, essential to making anode materials, one of the four main ingredients in EV batteries.

The revision offers Korean battery makers like LG Energy Solution, Samsung SDI and SK On two more years to reconstruct their supply chain. Of the 43 EVs currently eligible for IRA tax credits in the U.S. market, 31 use batteries from those three Korean companies.

U.S. President Joe Biden speaks before signing the Inflation Reduction Act in Washington on Aug. 2022. [EPA/YONHAP]

Diversifying the supply chain — a realistic scenario in two years? Cutting China out of the materials supply chain won’t be an easy game due to Korea's overdependence on the neighboring country for key battery materials.

As of last year, Korea imported 98 percent of graphite from China. Graphite, critical in making anode materials, makes up 30 percent of a lithium-ion battery. Around 100 kilograms of graphite is used in making batteries needed for an EV, around two times more than lithium.

“Korean battery makers must not let their guard down; two years are not enough," said Lee Ho-geun, an automotive engineering professor at Daeduk University.

“There are 45 graphite mines worldwide, and of them, 30 are owned by China,” Lee added. “It’s urgent for them to find alternatives like Africa and Australia, otherwise they will be facing the same risk in just two years.”

The BlueOval SK Battery Park Kentucky in Glendale, Kentucky. SK On and Ford are building two EV plants there. [SK ON]

China also controls the markets for other critical minerals like cobalt and lithium. Korea imported 88 percent of lithium from China last year, and 73 percent of its cobalt.

“China certainly took the helm of the world’s critical minerals market for EV batteries,” the Hyundai Research Institute analyzed.

LG Energy Solution signed a 10-year deal with Australia-based Novonix to source over 50,000 tons of artificial graphite. It also inked another source deal with Australia’s Syrah Resources for 2,000 tons of graphite starting in 2025.

Samsung SDI is also sourcing up to 10,000 tons of graphite from Syrah starting in 2026.

SK On also signed a supply deal with Colorado-based Westwater Resources to acquire up to 34,000 tons of graphite from 2027 to 2031. The company is also codeveloping eco-friendly anodes with Arizona-based Urbix under a two-year joint development agreement.

Korea’s Trade Ministry pledged 9.7 trillion won ($7 billion) in financing aid packages to help companies reduce their dependence on China. The government is pouring another 117.2 billion won to help them develop technologies to replace graphite in making batteries.

Ultium Cells employees work at its battery manufacturing plant in Lordstown, Ohio. Ultium Cells is a 50:50 joint battery venture between LG Energy Solution and General Motors. [LG ENERGY SOLUTION]

Preparing for a future free of graphite As decoupling from China in the graphite game is nearly impossible, Korean companies are eyeing batteries without the material.

Silicon has been emerging as the next holy grail for its potential to sharply cut the charging time for electric vehicles — possibly to less than five minutes.

Touted as the next “game changer,” silicon has 10 times more energy density than graphite. Higher energy density in battery materials translates to faster charging times and longer driving ranges for electric vehicles.

Theoretically, by applying some 5 to 10 percent of silicon to the anodes, charging can be reduced to five minutes.

Posco Holdings jumped into the market in 2022, acquiring 100 percent of Tera Technos for 47.8 billion won. The company recently finished the construction of a silicon-based anode materials factory with 550 tons of annual capacity, which is enough to power 275,000 EVs.

SK Materials in 2021 formed a 75:25 joint venture with Washington-based Group14 Technologies to jointly invest 25 billion won to build a facility in Sangju, North Gyeongsang. The plant is currently under pilot operations and aims to start mass production within the first half.

The company aims to ramp up production to 10,000 tons by 2025.

“The usage of high-nickel cathodes to increase energy density has already reached its limit,” Kim Hyun-soo, a researcher at Hana Securities, said. “As global names like Tesla and LG Energy Solution consider silicon-based anodes for their future batteries, the market will boom in earnest starting in 2024."

Korean battery makers are also rushing investment into developing lithium metal battery, which uses lithium metal instead of granite and silicon. It can have around 10 times more energy density than graphite-based anodes, though the development is still in the very early stages of discussion.

BY SARAH CHEA1 [chea.sarah@joongang.co.kr]