U.S. presidential election puts Korea on edge over EV-related investments

Korea's EV-related push in the United States hangs in the balance with the presidential election as the candidates take opposite positions on the green energy push.

In the razor-thin U.S. presidential race between candidates Vice President Kamala Harris and former President Donald Trump, one of the most divisive subjects in their policy debate is electric vehicles.

Though the two presidential hopefuls face criticism for their lack of clarity and flip-flopping on some key issues, a second Trump presidency would more likely jeopardize Korean companies' multibillion-dollar investments in the United States, which have attracted sizable subsidies.

The Korean stock market has lately been hampered by price fluctuations hedging against the potential impact of a Trump win — a variable that has come to be known as the “Trump risk” on the trading floor — after the Republican candidate showed his determination to shred President Joe Biden’s EV mandate.

Some firms categorized as “Harris trade,” dubbed as such for her generous policies toward cleaner cars, are trading relatively bullish after the consensus deemed her the winner of the two candidates' first and only head-to-head presidential debate held on Sept. 11.

Korea’s careful watch of the U.S. election comes as the country became the top investor in the United States, beating Taiwan and China, with commitments to around 90 large-scale projects totaling $21.5 billion last year alone. The investment plans are largely influenced by Biden's climate projects that aim to require two-thirds of all new cars and trucks on U.S. roads to be electric by 2032.

Biden’s EV mandate consisted of the Inflation Reduction Act (IRA) passed in 2022, which funneled $260 billion in incentives for a clean energy transition.

‘Korea needs a Harris win’

Korean auto and battery makers have been major beneficiaries of Biden’s clean car push, which will likely be inherited by Harris, who has taken over the Democratic baton.

Harris said that as president, she will "build on Biden's progress to ensure American industries and workers thrive" to support U.S. leadership in clean energy, adding that Biden's policies showed how "America can meet the moment and build the industries of the future while creating high-quality union jobs in the electric vehicle and battery supply chains."

Korean firms have already received around 2 trillion won ($1.5 billion) in subsidies under Biden’s U.S. Advanced Manufacturing Production Credit (AMPC), which offers generous tax credits to energy-friendly manufacturers for making specific components within the United States.

From left, Hyundai Motor Group Executive Chair Euisun Chung, Georgia Gov. Brian Kemp, and Jose Munoz, global president of Hyundai Motor, celebrate with a champagne toast during the official groundbreaking for Hyundai's EV plant in Georgia on Oct. 25, 2022. [HYUNDAI MOTOR GROUP]

Hyundai Motor's EV plant in Georgia [YONHAP]

The AMPC under the IRA grants $35 per kilowatt-hour for cells and $45 for modules, which saved Korean firms from falling into losses. LG Energy Solution reflected tax credits worth 447.8 billion won in its second-quarter operating profit. Excluding that, it logged an operating loss of 252.5 billion won.

“Either candidate poses a threat to Korean companies, as, if Harris is elected, labor costs will increase and in the case of Trump, the entire EV policy and related incentive programs can be reduced,” said Moon Hak-hoon, an automotive engineering professor at Osan University.

“However, a Harris victory is a better scenario for Korea due to the fact that domestic companies have already invested billions of dollars in the United States, and the EV industry must stay boosted to secure their profitability," Moon said.

The Asia-Pacific region has invested more than $200 billion in the United States during Biden’s term, according to a report from the White House, and of that, Korea was the No. 1 investor at 28 percent.

Kim Dong-myung, left, CEO of LG Energy Solution and Mary Barra, CEO of General Motors, pose for a photo after making their investment plan to build a third battery plant in Lansing, Michigan. [LG ENERGY SOLUTION]

Of Korea’s foreign direct investment, 44 percent was made in the United States last year, according to a report from the Korea International Trade Association.

Korean battery makers have a total of 17 plants operating or planned in the United States, with 12 of them newly announced since Biden took the helm.

Hyundai Motor has invested $5.5 billion to build an EV manufacturing facility in Georgia, which started partial production in early October.

“Harris’s win is comparatively preferable for Korea’s battery industry, as well as for the stock market, which heavily relies on energy businesses these days,” said Ha In-hwan, a researcher at KB Securities.

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]

‘I will end the EV mandate on Day 1’

Trump, on the other hand, sees climate change as a “hoax” and vowed to end the EV mandate on Day 1 of his presidency and repeal the IRA, which he said will “spell the death” of the American automotive industry.

Though he softened his anti-EV sentiment recently following backing from Tesla CEO Elon Musk, the former president is still expected to gut the clean energy incentives, which he claims benefit China over the United States, should he win.

In fact, Trump aggressively rolled back some 130 energy policies aimed at cutting greenhouse gas emissions during his four years in office.

SK Group Executive Vice Chairman Chey Jae-won, left, and Kentucky Governor Andy Beshear pose for a photo during a groundbreaking ceremony of their battery plant in Glendale, Kentucky, on Dec. 5, 2022. [SK ON]

“If Trump is re-elected, he is expected to attempt to scrap the IRA or at least revise it by a big margin to cut incentives for Korean companies through an executive order,” said Kang Gu-sang, a research fellow at the Korea Institute for International Economic Policy.

Entirely scrapping the IRA, however, isn’t considered a realistic scenario as most Biden-backed subsidies and incentives have proceeded in states considered Republican strongholds.

Georgia, led by Republican Brian Kemp, has $15.3 billion in IRA-linked projects to constitute the most concentrated Korean auto investment. The state of Indiana, where three battery plants of Samsung SDI are located, is governed by Republican Eric Holcomb while Republican Bill Lee occupies the office in Tennessee.

“Trump’s potential attempts to cut EV subsidies can be done by reducing the number of EVs subject to incentives by applying stricter standards and increasing incentives for internal combustion engine vehicles,” Kang said.

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

That could be why Trump is making desperate last-minute sprints to win in the Rust Belt in the northeastern part of the United States, where swing states are located.

The region includes Pennsylvania, Wisconsin and Michigan — three of the seven major swing states — which have a large automotive manufacturing workforce that has opposed the EV rules that directly impact jobs.

Harris and Trump are showing a nip-and-tuck game in the three states worth 44 electoral votes, with Pennsylvania at 19, the largest of the seven battleground states.

Once called the “Blue Wall,” voters in the states historically turned out strongly for Democratic candidates. That tradition, however, came to an end after Trump won over Hillary Clinton back in 2016. Biden won back the three in 2020.

“Harris’s slightly passive attitude toward EV policies recently is seen as no more than a walking-on-eggshells approach to lure the Blue Wall states while Trump claims that manufacturing jobs are at risk with Biden’s clean energy projects,” Prof. Moon said.

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