By John Smith
The Biden administration has proposed new guidelines for “foreign entities of concern” (FEOC), aiming to exclude China from the supply chain outside. This new regulation may bring about huge changes in the global electric vehicle battery supply chain.
Starting next year, a company will be classified as a “foreign entity of concern” if it is located in China, Russia, North Korea or Iran, or if it is located in other countries but has more than 25% of its shares controlled by entities from these countries.
Electric vehicles containing battery materials produced by “foreign entities of concern” (FEOC) will not be eligible for tax cred and subsidies under the Inflation Reduction Act (IRA) and the Bipartisan Infrastructure Act (BIL) .
Nikkei Asia” pointed out in an analysis report on December 8 that these tax credits and subsidies are important to Korean battery manufacturers because global electric vehicle manufacturers who want to sell cars in the United States hope to use them. Subsidy-eligible batteries.
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If electric vehicles meet the regulations, each new vehicle can receive a tax credit of $7,500. The Bipartisan Infrastructure Act allocates $6 billion in grants for batteries and the critical minerals they need to make them.
Prior to this, some analysts pointed out that Chinese companies continued to invest in the Korean battery industry, hoping to circumvent U.S. regulations and use this as a springboard to enter the U.S. market. According to a report by Bloomberg in July, Chinese companies’ cumulative investment in South Korea’s battery industry reached 5.1 trillion won (approximately US$3.9 billion) within four months.
Now, South Korean battery manufacturers face a difficult choice: either negotiate with Chinese companies to reduce the Chinese equity in the joint venture to less than a quarter, or give up the U.S. market.
The United States says the policy is to encourage greater diversification and resilience in critical minerals and battery supply chains, but it has also made clear that its purpose is to ensure the United States’ leading position in the electric vehicle market.
The proposed rules would apply to battery components starting next year and critical minerals in 2025.
In March this year, South Korean battery manufacturer SK On signed a memorandum of cooperation to establish a joint venture with two suppliers – South Korea’s EcoPro and China’s GEM.
According to the agreement, SK On and EcoPro will collectively hold 51% of the joint venture’s shares, while GEM will hold the remaining 49%. If they want the joint venture to supply U.S. customers, they must keep GEM’s shareholding below 25%.
South Korea’s LG Group has made adjustments to the new regulations.
In September this year, LG Chem signed an agreement with Chinese company Youshan Technology to establish a lithium iron phosphate (LFP) anode factory in Morocco. LG stated that they are preparing to reduce China’s shareholding ratio in accordance with new U.S. regulations.
South Korean battery maker LG Energy Solution has made significant investments in North America. The company said it has been investing in supply chain diversification over the past few years,
“Most of the products produced in China are only used in China.” LG New Energy said that it operates a triple supply chain in the United States, China and Europe, and each region has a localized supply chain.
LG New Energy said that this method may cost more initially, but it can save costs in the long run and comply with different regulations in various countries and regions.
Analysts believe that Korean companies must work hard to adjust their partnerships with Chinese companies next, and U.S. regulations will also affect the company’s future decisions. In the future, Korean companies will be more cautious about whether to allow Chinese capital to join.
