November 16, 2021 • 5 min read
How do Western policy changes affect South Korean battery material producers?
With the rise of policies that reward in-country manufacturing, what are the challenges for South Korean battery materials producers looking to establish supply chains in the Western world?
“In 2023, the US Inflation Reduction Act (IRA) introduced tax incentives for companies that manufacture battery materials locally,” says Dave OudeNijeweme, Senior Director for Batteries.
“This included a new tax credit of US$4,000 for the sale of used electric cars and expanded tax credits of up to US$7,500 for purchasers of certain new electric vehicles. Followed by a specific funding round under the Bipartisan Infrastructure Law to accelerate the domestic supply chain for battery manufacturing in the US.
“In the UK, since the Trade and Cooperation Agreement came into effect on 31 January 2020, EU- and UK-based carmakers are required to increase the minimum local content from 40 percent in 2021 to 55 percent by 2027 to avoid tariffs. Further rules of origin apply to batteries and their materials, with cathode active material – the highest value component in the battery – specifically mentioned.
“Initiatives like this have triggered a huge effort into rethinking the supply chains for electric vehicles, the materials that go into them, and where they will be produced,” continues OudeNijeweme.
Meeting global demand at pace and scale
According to the Advanced Propulsion Centre UK, the global compound annual growth rate for batteries is sitting at 28 percent from now until 2030. That’s another 12 million units per year by 2025 and 34 million units per year by 2030.
“More than 60 percent of the battery value is added upstream of battery manufacturing, in the complex and protracted value chain from mine to active material,” says OudeNijeweme.
“Electric vehicle-producing countries appreciate this and, in the context of government policies, are looking for greater security of supply and value-add with localized manufacturing of battery materials,” he explains.
These dynamics have prompted the world’s leading battery materials producers to enter new and unfamiliar regions.
“As predicted, we’re now seeing increasing proportions of the battery and its components being made in the US with critical materials sourced domestically or from countries that it has Free Trade Agreements with,” OudeNijeweme adds.
South Korean powerhouses prepare entry strategies
South Korea is home to some of the world's largest battery and battery material producers. With localization policies such as the one triggered by the Brexit and IRA deals on the horizon, manufacturers, along with their supply partners, recently announced significant expansion plans for production abroad.
“These companies are supported by longstanding research and development programs and a buoyant supply chain. And that’s why many South Korean battery companies already have significant supply deals with large automotive manufacturers,” says OudeNijeweme.
Moving battery production in-country
OudeNijeweme is seeing a significant capacity expansion of South Korean companies across the battery value chain. Most notably, in end markets such as Europe, North America and Indonesia.
But it’s the US that is most attractive for South Korean battery makers, due to the country's large domestic auto market and the presence of major vehicle manufacturers.
“Just recently, we’ve seen joint ventures between car and battery makers to build capacity of 129 GWh/yr and 120 GWh/yr by 2025 respectively,” says OudeNijeweme. “These are huge numbers if you consider that all the batteries for the Nissan Leaf produced in the US came from a 2 GWh/yr factory.
“Making 249 GWh of batteries requires around 250 kt (kilotons) of active anode materials and 350 kt of active cathode materials. These capacities don’t currently exist outside of Asia, and with the Inflation Reduction Act on top of sound commercial reasons and supply chain logistics, we’re expecting a significant localization effort for this material.”
Speed to market
However, the speed and scale at which this energy transition is happening, especially the electrification of transportation, is a challenge.
“Speed to market is everything, and this makes the supply chain creak,” says OudeNijeweme. “It’s also fair to say that much of the battery technology is still maturing, while much of the process technology is relatively immature.
“There’s a complex equilibrium to be achieved between accelerating delivery, providing confidence in project outcomes while maintaining flexibility to adapt to changes in the environment.
“Very few firms have mastered this trifecta to bring operating assets online at the pace and scale needed. It requires a departure from traditional sequential development processes seen in more mature industries and a heightened level of collaboration with owners, contractors and the equipment vendors.”
Overcoming the minerals supply gap
The minerals supply gap is widening, and the scale required for the electric mobility revolution, which aims to reduce our global dependence on fossil fuels, is now affecting the value chain’s ability to operate effectively.
South Korean companies have already secured access to raw materials in key lithium-, nickel- and cobalt-producing countries – namely South America and Australia. But to meet demand they’ll need more, and a partner to help liberate them from the ground while building up the required refining and recycling capacity.
“For all companies involved across the battery value chain, setting up sustainable practices to deliver battery materials with a lower carbon footprint will need to be considered at every step.”
If these challenges are not addressed, the industry risks moving the commercial viability of batteries in the wrong direction as prices surge and supply timing slips.
Partnering for success
Expansion into fast growing markets in Europe and North America provides significant growth opportunity for Asian-based battery materials producers.
However, OudeNijeweme says that translating an Asian business model to operate effectively within the construction, environmental, social and governance (ESG) practices of the Western world can be overwhelming and time consuming to navigate.
“It’s not enough to be experienced in converting battery material facility designs into local standards and codes. A much broader range of expertise is needed, such as understanding capacity of the local labor market and work practices, integration with the materials supply and construction ecosystem, and awareness of how to manage community impacts and permitting. Not having this can risk project delays and cost overruns when not managed effectively,” he says.
“Doing this without an experienced local partner who knows how to execute projects is possible, but it’s not how I would go about it,” he continues. “Business success in this market is based on supply chain security and speed to market. It’s a race to increase localized production capacity and the winners will be those who navigate the complexity of asset development and guarantee their feedstock material.
“For battery materials producers who form partnerships, joint ventures and collaborations across the entire supply chain will overcome these challenges and seize the opportunities of expanding their operations all over the world,” concludes OudeNijeweme.
