Korean companies fear losing US tax credits under the Inflation Reduction Act

US President Joe Biden (L) meets with South Korean President Yoon Suk-yeol on May 21 at the presidential home in Seoul.  Photo courtesy of the Korean Presidential Office

US President Joe Biden (L) meets with South Korean President Yoon Suk-yeol on May 21 at the presidential home in Seoul. Photo courtesy of the Korean Presidential Office

SEOUL, Oct. 7 (UPI) — US President Joe Biden has sent a letter to his South Korean counterpart Yoon Suk-yeol pledging to continue talks on the US Inflation Reduction Act, according to the Korean presidential office.

Kim Eun-hye, Seoul’s senior presidential secretary for press affairs, said Biden’s message was referring to the discussion the two countries had over the impact the IRA was having on Korean businesses.

“President Biden’s letter was the result of several meetings the two leaders had in New York and London last month to discuss the IRA,” Kim said at a news conference on Wednesday.

“He wrote that he understood the concerns Korean companies had, and also pointed to the positive roles they played. We think it might be an indication of their willingness to take into consideration the difficulties faced by Korean companies,” he said.

Under the IRA guidelines, signed by Biden in August, electric vehicles must be assembled in North America to qualify for tax credits.

The new law instantly became a headache for Korean automakers like Hyundai Motor and Kia because many of their electric cars no longer qualified for the tax credit and most of them were assembled in Korea.

The new law took effect in mid-August and Hyundai said US sales of its popular Ioniq 5 electric vehicle fell 14% in September from the previous month. During the same period, Kia’s EV6 sales fell even further, by 22%.

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While Hyundai Motor has plans to begin assembling electric vehicles in Georgia as early as 2025, Kia has no such plans for North America.

Things are also tricky for Korean battery makers, which already have factories in the United States. Their heavy reliance on Chinese-sourced components could also disqualify them for the tax credit.

As a result, battery manufacturers have already begun to diversify supply chains. For example, world No. 2 LG Energy Solution signed three memorandums of understanding with Canadian suppliers to increase the lithium and cobalt supply chain in North America last month.

Meanwhile, its cross-town rival SK On has signed up with Australia’s Global Lithium Resources to receive stable supplies of lithium, one of the most crucial elements in making batteries for electric cars.

For renewable energy companies, on the other hand, the IRA has had the effect of erasing political uncertainties, according to Samil PwC. Korea’s leading accounting firm also hoped that Korean steel mills would benefit from the law.

Observers hope that the Biden administration will finally come up with some remedies that could soften the impact of the IRA.

“Even US automakers could be affected by the new law if they have to use Korean batteries assembled outside the US,” said Daelim University automotive professor Kim Pil-soo.

“Also, a number of Korean automakers and battery makers are poised to invest heavily in the United States. I don’t think the Biden administration wants to discourage them with the IRA,” he said.

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