The impact of the OBBBA on the South Korean battery sector

The South Korean battery industry is navigating a period of significant difficulty. Corporate performance has deteriorated sharply in the wake of the so-called “EV chasm,” a period in which the adoption of electric vehicles (EVs) has slowed. Global market share is trending downward, and the United States has rolled back policies that support EV adoption even as Korean firms pursue massive investments in EV and battery production stateside. These three factors are causally interlinked. First, even as overall EV demand has contracted, relative demand for cost-effective, mid-to-low-range EVs has expanded. This phenomenon has meant that Chinese-made lithium iron phosphate (LFP) batterymakers have gained market share, while demand for Korea's ternary batteries has declined. Second, the EV chasm has been most severe in Europe, where EV and battery sales plummeted in countries that rolled back their subsidy programs, with the drop occurring immediately after the policy changes took effect. EVs are still more expensive than their internal combustion engine (ICE) counterparts, and government subsidies have been essential to bridging the price gap; the elimination or reduction of these subsidies in many countries has had a direct impact on battery demand. Third, the passage of the One Big Beautiful Bill Act (OBBBA) in the US brought an end to the EV purchase tax credit. This too will inevitably have a negative impact on the Korean battery industry. In Europe, EV sales fell by 27 percent in Germany and three percent in France after those countries rolled back their EV subsidies; the US market is highly likely to follow a similar path. Furthermore, even the Advanced Manufacturing Production Credit (AMPC) — which remains in effect — will be negatively affected, because if declining sales lead Korean firms to cut production in the US, the value of their AMPC benefits will decline in sync. However, the OBBBA also made it much more difficult for Chinese firms to enter US supply chains and benefit from the AMPC, meaning a European-style loss of market share to China is unlikely. To overcome this confluence of challenges and build on past successes, what measures should the Korean battery industry take? The most urgent task is undoubtedly to stimulate a recovery in the EV market by enhancing battery performance and lowering costs through technological and process innovation. This paper, however, proposes a complementary strategy: to proactively create and capture new sources of demand beyond the EV sector. Military drones and humanoid robots are prime examples. These emerging sectors share three key characteristics: they are poised to evolve into massive markets, are central arenas in the US-China technology rivalry, and, most importantly, they require high-performance batteries. Thus, they hold immense market potential for Korean companies.