Korean battery makers to soon be eligible for U.S. tax credits

The U.S. Treasury Department on Friday announced the battery component sourcing requirements for earning the Inflation Reduction Act (IRA) tax credits, which will take effect starting April 18.

An electric vehicle charging station in Goyang, Gyeonggi, is pictured on Sunday. [YONHAP]

Korea’s battery makers will soon be eligible for U.S. tax credits under the newly-announced battery sourcing rules.

The U.S. Treasury Department on Friday announced the battery component sourcing requirements for earning the Inflation Reduction Act (IRA) tax credits, which will take effect starting April 18.

The IRA, signed by U.S. President Joe Biden in August, grants up to $7,500 in tax credits to buyers of electric vehicles (EVs) assembled in North America.

In order to qualify for $3,750 of the credit, 40 percent of the critical-mineral value of the vehicle’s battery has to come from the United States or countries with which the United States has signed FTAs.

For the other $3,750, 50 percent of the battery-component value will have to come from the United States.

According to the latest notice of proposed rulemaking, a vehicle will be eligible for $3,750 tax credits when over 50 percent of the critical-mineral value of the EV comes from either extraction or processing of the critical minerals.

That means that a vehicle can still be able to receive the incentives when the critical minerals in its battery are extracted in countries that did not sign the FTA agreements, as long as the processing is done in the FTA partner countries.

Moreover, the U.S. Treasury concluded that it would not consider constituent materials such as cathode active materials, which are used to manufacture cathode electrodes, as a battery component that needs to be produced in the United States.

Instead, constituent materials manufacturing falls under the category of critical mineral extraction or processing, which is required to be done in the United States or in FTA partner countries.

The battery components that need to meet the 50-percent battery-component value requirements are cathode electrodes, anode electrodes, solid metal electrodes, separators, liquid electrolytes, solid-state electrolytes, battery cells and battery modules.

This means batteries containing constituent materials from outside the United States will be eligible for tax credits as long as over 50 percent of the major components, such as cathode electrodes, are assembled in the United States.

As Korean battery makers produce constituent materials domestically and then manufacture the electrodes using the constituent materials in the United States, major companies such as LG Energy Solution, Samsung SDI and SK On will be able to benefit from the IRA program.

Korea is welcoming the latest announcement that removed previous uncertainties regarding the key requirements.

"This will be an opportunity to establish a win-win relationship between Korea and the United States in battery supply chain cooperation," the Korea Battery Industry Association said in a release Saturday.

“President Yoon Suk Yeol recently met with the U.S. Trade Representative to request favorable conditions for Korean companies operating in the United States in regards to the IRA rules and more, while related ministries such as the Trade Ministry have also strived to have our position represented in the decisions through official statements and discussions,” Minister of Trade, Industry and Energy Lee Chang-yang said.

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]