South Korea Plans $7 Billion Push to Pivot EV Battery Industry Away From China

South Korea is dedicating around $7 billion to help wean its electric-vehicle battery supply chain away from China and align more with U.S. trade guidelines.

The Ministry of Trade, Industry and Energy in Seoul said Wednesday that it will provide 9.700 trillion won ($7.14 billion) in state financing to the local EV-battery industry this year to build up the country’s supply chain to continue to benefit from U.S. rules.

The financial aid, which involves cheaper state loans and tax incentives, will help local EV-battery makers source critical minerals from the U.S. and U.S. free-trade partners. The money is also aimed at supporting the development of lithium-metal batteries or alternatives to replace graphite, a key battery ingredient, the ministry said.

The move comes as South Korean EV makers and battery suppliers look to meet complex U.S. rules that take a tougher stance on Chinese manufacturers in the industry. One of the rules’ focus regards U.S. tax credits, which won’t be given to makers of cars that use critical minerals that come from China.

Carmakers breathed a sigh of relief when Washington decided earlier this month to allow them to use Chinese graphite until 2026 but give them until 2027 to source key materials like graphite from outside of China, in order to be eligible for the tax credit.

When Korea’s trade minister, Ahn Duk-geun, met with local EV companies and battery makers on Wednesday, he said they had earned “two years of precious time” to diversify their supply chains for graphite and other critical battery minerals, according to the ministry statement.

The Biden administration’s Inflation Reduction Act stipulates that no U.S. tax benefits be given to electric vehicles or EV batteries with critical minerals from “foreign entities of concern”—a term that largely refers to China, which dominates the global supply of graphite.

Appeared in the May 9, 2024, print edition as ‘South Korea to Beef Up Its EV-Battery Industry’.

Write to Kwanwoo Jun at Kwanwoo.Jun@wsj.com