Korean batteries made offshore widen trade deficit

Industry

Published: 24 Jun. 2023, 06:00

Korean batteries made offshore widen trade deficit

A lithium-ion rechargeable battery [SHUTTERSTOCK]

The trade balance for Korean batteries, which had been on an upward trend over the past decade, entered negative territory this year as companies increasingly shift towards on-site production at their respective foreign markets.

The trade deficit for lithium ion batteries last month stood at $240 million, according to Korea International Trade Association (KITA), with experts calling for more indigenous batteries benefits.

Battery exports in May shrunk 2.6 percent on year to $589 million, while imports grew 112 percent to $829 million.

The trade balance for Korean batteries has been logging surpluses since KITA started data compilation in 2012 at $1.6 billion. Surpluses peaked at $3.43 billion in 2019 but halved over the next three years to $1.65 billion last year.

Batteries’ trade balance has been bleeding deficits for five straight months since January this year, with the total deficit accumulating to $716 million.

Battery exports rose 67 percent between 2018 and last year to $7.34 billion. In contrast, EV and hybrid exports surged 305 percent from $3.57 billion in 2018 to $14.4 billion as of last year.

Batteries, which account for about half the production cost of an EV, seem sluggish compared to the actual end product, but one positive take on the battery industry is that it is creating room for related sectors, such as cathodes, to grow.

Cathode materials are key products that determine a battery's power and account for around 40 percent of battery cost. Cathode exports in May rose 17.5 percent on year to $1.19 billion. Korea ships more cathodes abroad than batteries.

A statistical distortion plays a role in batteries’ underperformance, experts argue.

“Korean battery makers such as LG Energy Solution and SK On produce batteries at their plants in China and reimport those products,” said Shin Yong-min, director of the electronics and electrical division at the Ministry of Trade, Industry, and Energy.

And when homemade batteries are put into EVs and sold overseas, these batteries are not included in the battery export tally, according to Shin.

The graph shows Korean batteries' trade balance since 2019. [KOREA INTERNATIONAL TRADE ASSOCIATION]

Korea became a battery-importing country this year partly due to the changing dynamics of the global battery landscape. The United States, Europe, and China — the top three EV markets — are starting to favor domestically-produced batteries over others.

The U.S. Inflation Reduction Act was passed in August last year to provide tax credits to batteries manufactured and sold in the United States.

The EU Parliament passed its own battery regulation bill on June 14 that will require foreign batteries to have a “battery passport” and meet the EU’s environmental standards to enter its market from 2026. Korean batteries’ share of the European market was at 64 percent last year, KITA data showed.

“Korean battery makers have to supply foreign carmakers with batteries produced in the respective countries to raise their chance of winning deals,” an industry source told the JoongAng Ilbo. Battery makers are below carmakers in the EV totem pole, according to the source.

Securing batteries is less of an issue for carmakers like Hyundai Motor and Kia that run battery plants overseas or are partnering with Korean battery manufacturers, but not for those that are relatively smaller in size, such as Renault and KG Mobility.

“Domestic EVs need to be equipped with domestic batteries for the cars to trade freely under the Free Trade Agreement, but we’re worried about a shortage in battery supply,” a Renault spokesperson told the JoongAng Ilbo.

KG Mobility, formerly SsangYong Motor, plans to put China-made batteries in its new EV scheduled to roll out this year.

“Government subsidies [for batteries] need to be on par with those for the EV market if it’s unrealistic to create new battery plants or enlarge existing ones in Korea,” said Park Chul-wan, an automotive engineering and secondary batteries professor at Seojeong University.

Korea has to become a stronghold for high-powered, next-generation battery production, and efforts to host foreign carmakers’ plants here are required as well, the professor added.

BY KIM KI-HWAN, SOHN DONG-JOO [sohn.dongjoo@joongang.co.kr]