South Korea's three major battery makers all returned to the black in the second quarter, emerging from a long stretch of losses. Yet the industry remains on thin ice. Strip out U.S. subsidies and one-off gains, and the underlying business looks fragile.
China's low-price offensive and rapid technological catch-up pose the biggest threat to Korean battery makers. According to the Korea Automobile & Mobility Association, Chinese-made batteries accounted for as much as 40% of domestically sold Korean electric vehicles last month. Even in the energy storage system (ESS) market, which has given the industry some breathing room, China is pulling far ahead. After lithium iron phosphate (LFP) batteries, Chinese firms are now accelerating the commercialization of sodium-ion batteries, widening their technological edge.
Against this backdrop, the industry views the government's new domestic production tax credit — dubbed Korea's version of the U.S. Inflation Reduction Act — with considerable unease. Under the tax reform plan announced last month, companies that manufacture products in six strategic industries, including batteries, will receive tax reductions proportional to output starting next year. The policy is seen as a step forward because it extends support beyond capital investment to actual production.
For the battery industry, however, it risks becoming a half-measure with little practical effect. Battery makers already posting massive losses from large-scale capital spending and research and development owe no corporate tax, leaving them with no benefit to claim. The government is well aware of this, yet it has balked at introducing a direct-pay refund system or providing outright subsidies.
The problem is that this is precisely the window in which Korea must secure competitiveness and seize the lead in the global battery market. The United States is mounting an all-out effort to nurture its domestic battery industry through direct payment of the Advanced Manufacturing Production Credit (AMPC), while China is doing so through astronomical subsidies. Within the industry, there is considerable fear that falling behind now could mean being left out before the electric vehicle market fully blooms.
The foundation of policy for future industries lies in ensuring that companies can keep their plants running and strengthen their technology without losing competitiveness, even while operating at a loss. Substantive measures for the battery industry are urgently needed. The 8.4 trillion won ($6 billion) investment roadmap that the government and the private sector have committed to Korea's battery industry will only matter if the industry survives to see it through.
