Korean battery makers up stake in joint ventures with China on U.S. regulation

[Photo by Yonhap]

South Korean battery makers are considering raising their stake in joint ventures with Chinese counterparts in the wake of the U.S. guidance on foreign entity of concern (FEOC).

According to industry sources on Sunday, Korean battery manufacturers and materials companies are mulling stake adjustments according to the FEOC guidance announced by the U.S. Department of Treasury on Friday.

Under the guidance, an FEOC is defined as those entities owned by, controlled by, or subject to the jurisdiction of governments from China, Russia, North Korea, and Iran.

The guidance established a 25 percent ownership threshold for an entity to be classified as a FEOC. If the entity in question holds 25 percent or more of its boarding seats, equity, or voting rates, it will be considered eligible for tax credits allowed under the U.S. Inflation Reduction Act (IRA).

Sources noted that Korean companies face the challenge of spending hundreds of billions of won to secure more shares from joint ventures with Chinese companies on key battery materials.

Earlier, SK on Co., EcoPro Materials, and China’s GEM Co. agreed to invest 1.21 trillion won ($926 million) in building a precursor plant in Saemangeum, North Jeolla Province, with the Korean partners holding a stake of 51 percent. The Korean battery makers, however, now have to increase their stake to at least 75 percent to evade the FEOC restriction, which will require an additional investment of 290 billion won or more.

LG Chem Ltd. and Huayou Cobalt Co. have signed an agreement to build a cathode material plant in Gumi, North Gyeongsang Province. LG Chem has 51 percent stake in the plant and Huayou Cobalt 49 percent.

The Korea International Trade Association (KITA) expressed concerns about potential impacts of the FEOC guidance on the Korean battery industry, citing that “the industry has relied heavily on the supply of Chinese materials.”

“Prompt actions, such as replacement of suppliers and stake adjustment, are necessary for Korean companies,” KITA said.

Some analysts, however, said the FEOC regulation would bring opportunity to the local battery makers as it can encourage North American automakers to use Korean LFP batteries.

Starting in 2024, electric vehicles equipped with LFP batteries manufactured in China will lose eligibility for IRA subsidies in the U.S. in accordance with the IRA provision.

In 2025, batteries made of Chinese cathodes will be included in the FEOC regulation.