Editor’s note: Global Atlanta Managing Editor Trevor Williams traveled Aug. 20-27 to South Korea, reporting on Georgia’s deepening trade and investment ties there. This is one in a set of blog posts he’s writing about the trip, on which he will base future reported news articles. Check here for updates and new entries.
If there’s one standout ally helping drive the U.S. transition to electric vehicles, it’s South Korea, where some of the world’s largest battery makers and vehicle producers are investing billions of dollars in American factories, including in Georgia.
That’s what is baffling many Korean (and some European) companies about the electric-vehicle tax credit outlined in the new Inflation Reduction Act, which could penalize some of the very foreign firms doing the most to aid the transformation.
During conversations with some of Georgia’s largest investors in Korea last week, a nuanced picture emerged in that companies were excited about the trajectory of clean-energy policy but concerned about unintended consequences of regulation.
Hanwha, which makes solar panels in Dalton, Ga., under its Q CELLS subsidiary and plans big investments in energy storage, stands to benefit from the anticipated wave resulting from recent legislation, including the IRA and the bipartisan infrastructure bill.
But in the auto sector, where investors like Hyundai, Kia, SK On and a bevy of suppliers have pledged more than $8 billion in Georgia alone to power what boosters call the “jobs of the future,” the picture is less clear.
The Inflation Reduction Act changed the eligibility for the $7,500 “clean-vehicle” tax credit, applying it only to EVs assembled in North America. That provision went into effect immediately when President Biden signed the bill into law Aug. 16, rendering ineligible 50 out of the 72 electric, hybrid and plug-in hybrid models sold in the U.S. (70 percent).
Effectively, this made vehicles like the Korea-made Hyundai Ioniq 5 and the Kia EV6 $7,500 more expensive than rivals; in fact, none of the Korean auto makers’ offerings made the cut in the U.S. Department of Energy’s most recent list of qualifying vehicles.
Batteries are another battleground, with the bill requiring that qualifying vehicles source more than half the value of their battery raw materials from North America by 2024, a proportion that ratchets up to 10 percent a year to 100 percent by 2029.
The problem, from the perspective of foreign allies and the broader industry, is that the EV supply chain is not a spigot that can be instantly turned on; it has to be carefully crafted over a matter of years, possibly more than a decade.
According to the Alliance for Automotive Innovation, a trade group, almost no vehicles would be able to meet the battery requirement in the short term.
“While we work to unlock supplies of critical minerals and ramp up battery production at home, we can’t currently meet the demand for these materials on our own. That’s the reality. Partnerships with friends and allies in North America and beyond will be necessary,” said President John Bozzella, who suggested the U.S. add more allies like Japan, NATO members and others to the list of eligible source countries for batteries and critical minerals.
SK, the world’s fifth largest battery maker, recently started production on a Georgia plant that will make enough batteries to power 330,000 cars — a drop in the bucket compared to the 15-17 million cars sold in the U.S. annually, even with the addition of a second plant on site that will nearly double capacity.
Huge investments announced (or entertained) by LG Energy, Chinese firm CATL, Samsung, Panasonic and others will only “scratch the surface” of the some 8 million batteries needed to meet the Biden administration goal of half of new vehicles in the U.S. going all-electric by 2030.
Hyundai has announced that its $5.5 billion plant in Georgia will source batteries from SK and make some at a new battery factory co-located with the plant, but in order to achieve any kind of scale as it begins car manufacturing in 2025, it will likely need to include foreign-made batteries as well.
This is not to mention the need for new sources rare-earth metals and raw materials like lithium, cobalt, manganese and nickel, where China has advantages at home and abroad As I learned during an interview at SK On, the developer of the first 90 percent nickel battery gets many of its raw materials — and some of its finished product — from China. Another stipulation includes that sourcing and recycling of batteries cannot be conducted by “entities of concern” — including many Chinese and Russian firms.
SK is not a company that is looking to disadvantage American manufacturing. It supplies the batteries for the Ford F-150 Lighting through a partnership with the iconic American brand that will lead to more than $11 billion invested in Kentucky and Tennessee. Its global strategy is built on localization in three key regions of the world — the U.S., Europe and China, according to Joonyoung Jung, a member of the public-relations team at SK On.
Mr. Jung pointed out that SK On invested $30 million for a stake in Colorado-based Solid Power, with hopes of a breakthrough in solid-state technology, the so-called “dream battery” that would boost range, reduce weight and improve safety.
It’s also working with researcher Seung-woo Lee at Georgia Tech to scale up a pioneering solid electrolyte material that would advance this goal. The company plans moves into a “battery-as-a-service” model that would lead to further investments in energy monitoring, recycling and material extraction.
South Korea has expressed misgivings about the new incentives, launching consultations with U.S. on the issue, which both Korean and European authorities have suggested discriminates against foreign-made products and could violate World Trade Organization rules.
Jennifer Safavian, CEO of Autos Drive America, an advocacy group that includes Kia, Hyundai and other foreign automakers invested in the U.S., issued this statement when the final version of the IRA was released:
“It is disappointing that Congress did not recognize the necessity of working with all of our allies as supply chains are being developed within the North American region … At a time when countries and industry are investing together towards more resilient supply chains, we should not limit the partners that can help advance the transition towards cleaner transportation.”
James Kim, head of the American Chamber of Commerce in Korea, stressed during an interview in Seoul that his organization is non-partisan and apolitical, but it does see helping Korean member companies like Hyundai expand in the U.S. as a core part of its mission.
Mr. Kim, who formerly headed up GM in Korea, is concerned that Hyundai and Kia have voiced issues with the law, but he’s “optimistic” that a solution can be found.
“I don’t know what the resolution is, but as the head of AmCham, I hope that given such a special relationship that Korea and the U.S. have forged and the special relationship that Hyundai and Kia have with investments into America, they will come up with a meaningful solution that becomes more of a win-win. I just don’t want to see anyone losing momentum.”
In Georgia and other auto-heavy states around the Southeast, any stalling on the part of Korean investors could impede broader ambitions to become a hub for the EV value chain.