US sets limits on Chinese contents to receive tax credit

"Foreign Entity of Concern” (FEOC) with a share of Chinese manufacturers exceeding 25% will not be eligible for EV tax credits per the U.S. Inflation Reduction Act (IRA). Korean companies actively engaged with Chinese counterparts in battery supply chains in materials and minerals will inevitably have to change their direction for the short term.

The U.S. administration announced details of the FEOC to be exempt from IRA tax credits on Friday. According to the newly announced guidance, EV manufacturers using key minerals in batteries sourced from Chinese companies will be classified as FEOC and not eligible for subsidies. Joint ventures (JV) with Chinese shares exceeding 25% will not be eligible for subsidies. The new measure comes after a similar regulation was introduced on semiconductors.

LG Chem’s cathode materials plant in Gumi, South Gyeongsang Province, of which 500 billion won was invested, is owned 49% by Huayou Cobalt. LG Chem needs to buy at least 24% of the share from Huayou Cobalt to sell its products to battery manufacturers in North America. “We need to adjust and share with Huayou about other cathode material plants planned in Saemangeum in North Jeolla, Morocco, and Indonesia. It will be burdensome for us to invest additional hundreds of billions of won amid high interest rates,” said LG Chem.

The Ministry of Commerce, Trade, and Resources will host a public-private sector meeting with LG Energy Solutions, Samsung SDI, and SK ON on Saturday to support diversification of sourcing locations. “The recent announcement is expected to significantly improve business management and uncertainties for investment,” said the ministry.


will@donga.com