LG Energy Solution eyes new supply chains to reduce dependency on China

Industry

Published: 20 Oct. 2022, 11:45 Updated: 03 Nov. 2022, 18:53

LG Energy Solution eyes new supply chains to reduce dependency on China

LG Energy Solution's logo at the company's headquarters in Yeouido, western Seoul [NEWS1]

LG Energy Solution is scrambling to expand its supply chain of critical minerals in an effort to reduce its dependency on China after the passage of the U.S. Inflation Reduction Act (IRA).

The Korean battery maker said Thursday it signed a deal with Australia-based Syrah Resources for the supply of graphite, a major ingredient in making EV batteries.

Under the agreement, LG Energy Solution will be provided with 2,000 tons of graphite starting in 2025.

The two parties will negotiate details and sign a legally binding deal within the year. The amount of supply will likely increase.

Graphite is a core material for making anodes, one of the four critical components in EV batteries.

The latest deal with Syrah Resources is LG Energy Solution's attempt to reduce its dependency in China. The U.S. government's recently-passed EV tax rule restricts the use of critical minerals that are extracted or processed in China.

But China controls around 70.4 percent of graphite production, according to data from the International Energy Agency.

The ASX-listed Syrah Resources owns a mine in Mozambique, Africa, one of the places known to have the largest quantity of graphite reserves. Syrah Resources will build a production facility in Louisiana next year, and start mass production in 2025.

"This cooperation is meaningful that we got to secure the critical ingredients in the United States," said LG Energy Solution CEO Kwon Young-soo.

LG Energy Solution already signed supply deals with multiple North American companies for the stable supply of critical minerals. LG Energy will source 7,000 tons of cobalt sulfates from Canada's Electra for three years starting in 2023, while Avalon will supply 55,000 tons of lithium hydroxide for five years starting in 2025, and Snow Lake 200,000 tons for 10 years.

Kansas-based Compass Minerals will supply 40 percent of the lithium carbonate and lithium hydroxide it produces every year for seven years starting in 2025.

LG Energy also purchased 7.5 percent of Australia-based Queensland Pacific Metals to buy 7,000 tons of nickel and 700 tons of cobalt from the company annually for 10 years from the end of 2023.

Under the terms of the IRA, buyers of EVs assembled in the United States are eligible for a $7,500 tax credit for vehicles purchased after Aug. 16, 2022, extending an existing program that offered a $7,500 tax credit for EV purchases regardless of origin.

After Jan. 1, 2023, content requirements for batteries begin to phase in over a number of years. In 2023, 40 percent of critical-mineral value will have to come from the United States or countries with which the United States has a free trade agreement to qualify for $3,750 of the credit. That number increases 10 percentage points a year to 80 percent in 2027.

Fifty percent of battery-component value will have to come from the United States to qualify for another $3,750 of the tax credit. That number will increase 10 percentage points a year to 100 percent by 2029. To qualify for the subsidy, a vehicle must be completely free of Chinese-made components from 2024 and free of Chinese critical minerals from 2025.

Critical minerals include lithium, cobalt, nickel, tin, tungsten and graphite, while components include cathodes, anodes, electrolytes and separators made with those minerals.

To qualify for the subsidy, a vehicle must be completely free of Chinese-made components from 2024 and free of Chinese critical minerals from 2025.

BY SARAH CHEA [chea.sarah@joongang.co.kr]