South Korea’s battery industry, which relies heavily on Chinese graphite, has welcomed the U.S. government’s decision to extend tax credits for electric vehicles (EVs) containing Chinese graphite until the end of 2026. The U.S. had initially planned to block the use of Chinese minerals in battery production as part of the Inflation Reduction Act (IRA) starting next year but decided to postpone the sanctions on graphite for two years after automakers requested more time to source graphite outside of China and make changes to supply chains.
Graphite is a raw material used in battery anodes, one of the four components that make up an EV battery alongside cathodes, electrolytes and separators. Korea’s battery industry sources 97% of the graphite it uses from China.
The U.S. Treasury Department said it would give automakers until 2027 to remove crucial trace minerals such as graphite from battery production on May 3. EVs with batteries that use minerals from “foreign entities of concern (FEOC)”, including China, lost eligibility for tax credits of up to $7,500 after new battery sourcing rules took effect on January 1. The new rule was aimed at pushing China out of the global EV supply chain by restricting the use of Chinese parts and materials.
But the U.S. has temporarily exempted graphite and other hard-to-trace minerals from new rules following appeals from major automakers such as BMW, Volkswagen and Hyundai Motor Company company about the difficulties in sourcing graphite outside China.
Korean automakers and battery companies are “breathing a sigh of relief” at this decision, according to industry insiders. If the sanctions had been implemented as planned, domestic battery manufacturers would have faced a drastic sales drop as they are highly dependent on Chinese graphite. Last year, Korea’s top EV battery manufacturers, LG Energy Solution, Samsung SDI, and SK On, generated a combined revenue of 10 trillion won in the U.S. The three EV batter makers’ combined global market share amounted to 31.7%.
Hyundai, which plans to start producing EVs in the U.S. next year, is also expected to benefit from the flexibility on graphite regulations, potentially receiving up to $7,500 per vehicle in EV subsidies. Without temporarily excluding graphite from new battery sourcing rules, 30 EV models with batteries made by LG Energy Solution, Samsung SDI, and SK On would have been ineligible for subsidies in the U.S. next year.
China has one of the world’s largest reserves of natural graphite and produces over 60% of the world’s natural graphite, according to the US Geological Survey’s 2023 annual report on the mineral. It also refines over 90% of the world’s graphite into the anode material used in EV batteries. “Top buyers of Chinese graphite include the US, South Korea, Japan, Poland and India,” said ING.
Since graphite has been exempted from U.S. regulations for only two years, experts say domestic EV companies must move fast to adjust supply chains. SK On signed a graphite supply contract with U.S.-based Westwater in February, and POSCO Future M decided to import graphite from Australia’s Syrah Resources and Mozambique in March. “The reprieve is temporary, so if we do not build an EV supply chain without Chinese materials quickly, we could face a crisis again,” said Park Jae-beom, a senior researcher at the POSCO Research Institute.
This article was originally published on May 4.
