The Inflation Reduction Act, which President Joe Biden signed into law last week, earmarks $374 billion for decarbonization and scaling up local manufacturing in areas like wind, solar, batteries and green hydrogen. Washington’s goal to cut dependence on equipment from China, which dominates many of these markets, should also give Korean firms a competitive edge.
“Without the Chinese firms in the picture, Korean companies in the clean energy sector are the clear winners,” said Shin Jin-ho, co-chief executive officer at Midas International Asset Management Ltd. “Given that the legislation is designed to cut American dependence on Chinese supplies, that should offer benefits to even auto and battery makers in the long term.”
Hanwha is planning a multiyear, multibillion-dollar investment in rebuilding its US solar supply chain now that the legislation has been signed, a company spokesman said, adding that the firm will receive additional credits as its capacity increases. CS Wind is weighing further investments as the environment has turned more favorable due to the law, according to a company official.
The law may make life more difficult for Korean automakers and EV battery manufacturers, however. Hyundai Motor Co., LG Energy Solutions Ltd. and SK On Co. have said the need to relocate more production to the US and use less Chinese materials could hurt their competitiveness.
Hyundai Motor is investing $5.5 billion to build an EV assembly and battery plant in Georgia, and is also spending $300 million to expand a plant in Alabama.
Sourcing critical minerals for batteries from regions such as the US and its Free Trade Agreement partners may be more challenging for Korean firms, Nomura Holdings Inc. said in a note last week. China dominates the EV battery supply chain, and accounts for more than 50% of lithium processing capacity.
South Korea will “actively” consider filing a complaint to the World Trade Organization as the law violates the two countries’ bilateral free trade agreement by excluding EVs built outside of US from tax breaks, Industry Minister Lee Chang-yang said on Monday.
The bill has been fueling gains in the Korean firms’ share prices. Hanwha Solutions and CS Wind have both jumped around 40% from lows in mid-July. Hyundai Energy Solutions Co., which distributes solar modules in the US, has also risen sharply over the same period, while Doosan Fuel Cell Co., which is involved in hydrogen projects, is up as well.
Hanwha and CS Wind both closed up 3.7% on Tuesday as the Korean benchmark share index fell.
“Within Asia, South Korea stands out as one of the major beneficiaries,” said Ulrik Fugmann, senior portfolio manager and co-head of the environmental strategies group at BNP Paribas Asset Management. “It’s clear that the climate bill is the US response to take on Asia as a leader in environmental technologies, and the IRA has a heavy emphasis on domestic supply chain.”