Hyundai, Korean Battery Makers Bristle at Biden Climate Bill

South Korea’s Hyundai Motor and local battery makers are struggling with the Biden administration’s historic climate and energy law that’s aimed at containing the influence of Chinese companies in the global electric car industry and boosting domestic production of EVs.

The act, which has been signed into law by President Joe Biden, requires EV makers to assemble their cars in North America and quickly reduce their reliance on China for battery components and materials in order to get a maximum $7,500 in tax credits. That’s a disaster for Korea: Hyundai and Kia don’t have any operational electric car plants in the U.S. (and Hyundai specifically faces union resistance when it comes to overseas expansion) and Korean battery makers import more than 80% of minerals from China; mines typically take seven years or longer to come online.

Japanese automakers are at a similar disadvantage, having invested lots of money in the U.S. but not currently producing EVs there. With the exception of Nissan’s Leaf, no other Japanese EV model would qualify for subsidies under the new rules.

South Korea’s trade ministry is considering asking the U.S. to postpone the Inflation Reduction Act, even just for two or three years, during which time Hyundai could build a new EV plant, an official said last week. Hyundai is also mulling speeding up construction of a planned EV plant in Georgia, Yonhap News reported.

Korean government and company officials don’t see the exclusion of Chinese rivals as an opportunity. The two rely on each other so much. It’s not a new dilemma either. The U.S. is Korea’s closest political ally, but China is its biggest trading partner and deeply involved in Korean supply chains.

Treasury Secretary Janet Yellen described U.S. efforts to diversify supply chains with “trusted partners” as “friend-shoring” during her visit to Seoul last month, adding the U.S. “cannot allow countries like China to use their market position in key raw materials, technologies, or products.” South Korea is also being asked to join a kickoff meeting of the so-called Chip 4 Alliance, a new group of major chipmaking powers, along with the U.S., Taiwan and Japan.

According to Chul-Wan Park, a professor at Seojeong College who specializes in the auto industry, the Inflation Reduction Act could be a “huge opportunity for South Korea by excluding China, but unfortunately, no company is that well prepared for diversification.” The US might “push Korea to join the Chip 4 Alliance in return for relaxing or delaying the IRA requirements.”

Korea’s Industry Minister Lee Chang-yang earlier this week said he was considering filing a complaint with the World Trade Organization against the act. Some 25 lawmakers in South Korea proposed a resolution against it, urging the U.S. not to “discriminate” against foreign electric car and battery makers.

As one analyst said, there’s a feeling the U.S. is betraying South Korea, particularly given the huge investment that Korean companies have promised to make in U.S. Hyundai announced a plan to invest $5.5 billion to build an EV assembly and battery plant near Savannah, Georgia, and Korean battery makers have a series of plans for battery plants: four plants for General Motors, two for Stellantis and three for Ford.

The act will result in a loss of 100,000 jobs in South Korea and hurt profits at local auto-parts makers, Kweon Seongdong, a senior ruling party lawmaker said. That’s in stark contrast to the around 35,000 jobs expected to be created in the U.S. by 34 Korean companies, mostly in the battery industry, according to U.S. lobby group Reshoring Initiative.

Another issue is that Hyundai will have to reduce its dependence on Chinese-made auto parts. South Korea imported about 35% of its total auto parts from China in 2021, according to the Korea Institute for Industrial Economics and Trade.

“It will be hard to secure raw materials and components from the U.S. to meet the threshold to access the tax credits,” BloombergNEF energy storage analyst Evelina Stoikou said. “In addition, companies will have to move fast as it takes time to build component and battery manufacturing capacity (up to three years) and the credits will be phased out in 2032.”

Hyundai and Kia have become the largest EV makers behind Tesla in the U.S. this year, selling about 44,000 clean cars, according to BNEF. Korean battery makers are also supplying not only U.S. carmakers like Tesla, GM, Ford and Rivian, but also European names like Volkswagen and BMW.

Global carmakers have few other options to turn to if they aren’t prepared to be more accommodating to Korean battery companies. All the top 10 battery makers are from Asia — six from China, three from Korea and Japan’s Panasonic, according to SNE Research.

As Kim Pil-Soo, an automobile professor at Daelim University, put it: “It’s not just a matter for Korean carmakers. U.S. carmakers like Ford and Tesla are also using Chinese minerals to lower the price of EVs. The IRA is a disaster for them too.”

Heejin Kim reports for Bloomberg News.

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