TL/DR –
In 2023, provisions in the Inflation Reduction Act (IRA) impacted Korean electric vehicle (EV) makers – initially causing uncertainty when Korean companies were left off the list of eligible vehicles for the Section 30D $7,500 clean vehicle credit, but later benefiting them as many Korean EV models became eligible for the credit under the Section 45W portion of the IRA. The IRA classified cathode and anode battery materials as “critical minerals,” benefiting Korean battery manufacturers. However, from 2024, no battery components can originate from “foreign entities of concern,” impacting Korean companies with Chinese stakes, given China’s dominance in producing graphite and manganese for electric vehicle batteries.
2023 Review: Korean Impact and the Inflation Reduction Act
The Inflation Reduction Act (IRA) implemented in April 2023 led to significant changes in battery component and critical mineral material standards, resulting in a major impact on Korean electric vehicle (EV) manufacturers and suppliers. Most notably, Korean companies were excluded from the Section 30D $7,500 clean vehicle credit vehicle list.
Despite this setback, certain IRA provisions benefitted Korean businesses. As a result of Treasury’s commercial vehicle guidance, many Korean EVs became eligible for the Section 45W IRA credit, provided they were leased. Consequently, Korean vehicles like Hyundai Ioniq, Hyundai Kona, Hyundai Nexo, Kia EV6, and Kia Nero Electric were qualified, causing leasing rates to soar by 40 percent in the US market within four months.
The 2023 Treasury’s updated guidance classified cathode and anode battery materials as “critical minerals,” which allowed Korean battery manufacturers to be eligible suppliers for Biden’s EV initiative. However, the Treasury later stated battery components should not originate from “foreign entities of concern.” This move will particularly affect Korean companies with a significant stake from Chinese entities starting in 2024 for batteries, and 2025 for critical minerals.
Notwithstanding China issues, the added IRA provisions clarified Korea’s role in the US green energy transition. The updated Treasury’s guidance has allowed for critical minerals agreements—like the one signed with Japan—to qualify for the “free trade agreement partner” sourcing component in the IRA. This component facilitated Korea to potentially expand their critical minerals sources under the IRA.
Moreover, Korean companies can potentially collaborate with Chinese companies on US-based green projects due to the Section 45X Advanced Manufacturing Production Credit guidance released. The guidance did not restrict any foreign company from Section 45X, potentially opening opportunities for Chinese partnerships.
The push for electric vehicles necessitates a complete resourcing of supply chains to meet the IRA’s production and purchase subsidies. Future rules may need to consider alternative sources of critical minerals. Korea’s status as a U.S. free trade agreement partner may help them gain benefits from the IRA, as they heavily invest in vehicle and battery manufacturing facilities in the United States.
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