Chinese Firms Investing Billions in South Korea to Get US EV Tax Credits

The growing demand for electric vehicles (EVs) continues to drive investment from Chinese firms despite ongoing tensions with the US. To battle against heavy reliance on Chinese supply chains, several Chinese battery materials companies are investing in South Korea, with projects worth at least $4.4 billion this year alone.

As reported by Reuters:

Five battery materials plants worth about 5.6 trillion won ($4.4 billion) in total have been announced this year by Chinese companies and local partners in South Korea, including battery firms POSCO Future M (003670.KS) and SK On, according to a Reuters review of project announcements.

The deals follow the introduction of the U.S.’s Inflation Reduction Act (IRA), which requires at least 40% of the value of critical minerals used in an auto battery to be sourced from the United States or a free trade partner to qualify for a $3,750 tax credit per vehicle.

The IRA, designed to wean the U.S. off the Chinese supply chain for electric vehicles (EVs), will also eventually bar tax credits if any EV battery components were manufactured by a “foreign entity of concern”, a provision aimed at China.

The move comes as China’s EV market is becoming increasingly saturated, and manufacturers looking to expand production capacity and access the crucial US market are seeking alternative options.

China’s EV Market is Starting to Saturate
China is the world’s largest market for electric cars, and in 2020, its EV market accounted for 41% of all global EV sales. However, China’s EV market has since started to saturate, with the number of manufacturers growing increasingly competitive and leading to a greater number of failures. Consequently, companies are looking to expand production capacity and seek new opportunities abroad. By investing in South Korea, Chinese firms can also gain access to advanced technologies and expertise.

US Tax Credits are an Incentive For Chinese Firms
The US government recently extended tax incentives worth up to $7,500 for consumers that purchase an EV. The incentives are designed to promote the use of cleaner technologies and reduce greenhouse gas emissions. To meet the requirements for these incentives, manufacturers must use components made in the US or from countries classified as US free-trade partners. Chinese firms are investing billions in South Korea to get around this issue and access the much-maligned US market.

South Korea’s EV Industry is Thriving
South Korea is swiftly becoming a leader in the EV industry, with major global players like Tesla, Volkswagen, and Mercedes-Benz investing heavily in the country. South Korea is home to several EV battery manufacturers and holds a significant tech advantage in battery technologies, putting it at the forefront of EV development. By investing in South Korea, Chinese firms can also leverage the country’s significant technological advancements and tap into the world-class supply chains available in the country.

South Korea is a Great Alternative to China
South Korea is a great alternative to China for several reasons. The country has well-established and efficient supply chains, an innovative culture of technological research and development, and is home to several major global companies. Additionally, South Korea’s tech prowess puts it at an advantage for developing cutting-edge technologies. By investing in South Korea, Chinese firms can diversify their supply chains and build strong partnerships with companies in a country perceived as being more comfortable to do business with.

The Future of EVs is Bright
The EV industry is growing at a breakneck pace and is likely to lead the way on a global energy transition. Chinese firms are wise to invest billions in South Korea to get access to the lucrative US market and avoid restrictions on the supply chains they use. The future of EVs looks brighter with every passing year and is prompting businesses to look to regions like South Korea to enhance their technologies and gain greater access to the global market.

China’s EV market is starting to saturate, and manufacturers are increasingly looking abroad for new opportunities. By investing billions in South Korea, Chinese battery materials firms can access advanced technologies, expertise, and gain greater access to the US market. The unique opportunity to access tax credits on offer from the US government is the primary driving force for this move. South Korea’s position as a leader in the EV industry, with advanced battery technology, and significant experience in the supply chain management sector, makes it an ideal location for investment by Chinese firms. The future looks bright for EVs, and businesses are sure to keep innovating and investing in new technologies to gain a foothold in this exciting market.