South Korean battery makers are turning to U.S. tax incentives to bolster their financial performance. (Image courtesy of LG Energy Solution)
SEOUL, Oct. 7 (Korea Bizwire) – As the global electric vehicle (EV) market grapples with a drop in demand, South Korea’s battery industry is struggling to emerge from a prolonged slump. Increasingly, these companies are turning to U.S. tax incentives to bolster their financial performance.
According to industry analysts, the three major South Korean battery manufacturers — LG Energy Solution, Samsung SDI, and SK On — are expected to report lower-than-anticipated operating profits for the third quarter of this year.
Financial data compiled by Yonhap Infomax reveals that LG Energy Solution’s projected operating profit for Q3 is 445.2 billion won, a 39.1% decrease from the same period last year. Samsung SDI’s forecast stands at 169.7 billion won, representing a steep 65.8% year-on-year decline.
SK On, which has reported losses for 11 consecutive quarters since its inception, is unlikely to turn a profit in Q3. The company posted a record quarterly operating loss of 460.1 billion won in Q2, attributed to decreased factory utilization rates and initial costs associated with a new plant in Hungary.
Amidst these challenges, the Advanced Manufacturing Production Credit (AMPC), a key provision of the U.S. Inflation Reduction Act (IRA), has become an increasingly significant factor in the companies’ financial results.
LG Energy Solution narrowly avoided a loss in Q2 by including 447.8 billion won in AMPC credits in its operating profit. Without this boost, the company would have reported an operating loss of 252.5 billion won. Analysts expect similar AMPC figures for Q3.
SK On has also seen its AMPC benefits grow, from 38.5 billion won in Q1 to 111.9 billion won in Q2, buoyed by recovering sales in the U.S. market.
While Samsung SDI currently receives less benefit from AMPC due to its lack of North American production facilities, this is set to change. The company’s joint venture factory with Stellantis in North America is scheduled to begin operations as early as the end of Q4, potentially expanding AMPC benefits from next year.
Additional joint ventures and new factories planned by LG Energy Solution and SK On in various U.S. states are expected to further increase the industry’s reliance on these tax credits.
However, the upcoming U.S. presidential election looms as a potential risk factor. There is speculation that if former President Donald Trump wins, IRA subsidies could be reduced.
Lucasz Bednarski, author of “Lithium: The Global Race for Battery Dominance and the New Energy Revolution”, recently commented at a U.S.-Korea Industrial Cooperation Conference that while a victory by Democratic candidate Kamala Harris would likely maintain current battery policy directions, including the IRA, a Trump win could lead to reduced IRA benefits, potentially impacting South Korean battery firms.
An industry insider noted, “While AMPC has indeed supported aggressive investments in the auto and battery sectors aligned with the shift to electrification, our business operations would continue even without relying on AMPC.”
Kevin Lee (kevinlee@koreabizwire.com)
