EU’s raw materials act to pose challenges to Korean auto, battery makers

Hyundai EV Ioniq [Photo provided by Hyundai Motor Group]

South Korean auto and battery companies are on alert as the European Union (EU) is slated to come up with its own version of the U.S. Inflation Reduction Act (IRA) with an aim to boost the regional supply chain for more industry competitiveness.

According to multiple industry sources on Thursday, the EU will announce a draft of the Critical Raw Materials Act (CRMA) on March 14. The EU, which has experienced a supply chain crisis due to the U.S.-China conflict and Russia-Ukraine war, has been preparing an act to beef up its own supply chain to move away from high dependency on China and Russia.

The CRMA is expected to contain measures that help the EU to source a larger portion of raw materials from Europe and enhance carbon-neutral economy.

Korean car and battery players, in the meantime, are likely to hit a snag in their moves to shift to electric vehicles.

The EU is the largest destination for green car exports for Hyundai Motor Group and the largest market for local battery makers.

Korean battery manufacturers may have to realign their supply network given that they have a high dependence on China for raw materials and refining and smelting.

The auto industry may also have to build EV factories in Europe and churn out cars there.

Industry insiders note that the move comes as the EU will not just sit back and watch the U.S. reorganize the manufacturing sector’s order.

This year marks the 30th anniversary of the European single market but it is struggling in search of a growth engine amid slowing industrial activity due to the energy crisis.

The World Bank projected the EU will register no economic growth this year.

“Global players like Hyundai Motor Group can localize its supply chain relatively easily but parts manufacturers that produce components from factories in Korea for overseas supply may face the risk of losing orders,” said Kim Pil-soo, a professor of automotive engineering at Daelim University College.