A closing window for South Korea’s battery industry

Unease has deepened across South Korea’s battery industry after vehicle battery supply contracts worth trillions of won were canceled in the United States last month. Kim Jeong-gwan, the minister of trade, industry and energy, recently met with executives from LG Energy Solution, SK On and Samsung SDI and urged them to seriously consider whether the industry’s current three-company structure remains sustainable. After petrochemicals and steel, warning lights are now flashing over secondary batteries, a pillar of South Korea’s future growth strategy.

The industry is under mounting pressure as battery demand weakens following cuts to electric vehicle subsidies in the United States and Europe, while competition from Chinese manufacturers intensifies. Europe’s reduction of EV subsidies in 2023 triggered a sharp drop in battery demand. South Korean firms saw their share of the European market fall to 48.8 percent in 2024 from 63.5 percent in 2022. By contrast, Chinese companies focused on cost-competitive lithium iron phosphate batteries increased their market share to 47.8 percent from 34 percent over the same period. Last year, South Korean battery makers were also overtaken by Chinese rivals in global market share outside China.

Conditions in the U.S. market, where order cancellations continue, are even more challenging. The shock from the Trump administration’s decision to scrap electric vehicle tax credits has rippled through the battery sector. South Korean battery makers are pressing ahead with large-scale investments to build 14 battery plants with a combined capacity of about 580 gigawatt-hours across seven U.S. states. However, cancellations by U.S. automakers now threaten their ability to fully benefit from battery production tax credits worth up to $45 per kilowatt-hour.

Batteries are a future industry with the potential to reshape the industrial paradigm. South Korean companies are struggling with high electricity costs and limited access to raw materials. Chinese firms, by contrast, have secured inputs at low cost and built massive production facilities backed by government subsidies that far exceed those available to South Korean competitors. At a time when major corporations are investing heavily for long-term growth, and when the United States and China are pouring vast public funds into advanced industries, it is unrealistic to expect voluntary restructuring under a “self-help first, government support later” principle that withholds policy backing until companies submit restructuring plans.

Private-sector self-rescue efforts are unavoidable. These include shifting production lines toward energy storage systems, where demand is rising alongside the artificial intelligence boom, or toward cost-competitive lithium iron phosphate batteries, as well as pursuing mergers and acquisitions. At the same time, government incentives must accompany these efforts to steer autonomous industrial restructuring. Possible measures include introducing advanced industry production tax credits or direct refunds for investment tax credits, as practiced in the United States and China, or extending the special electricity rate discount for energy storage systems that is set to expire this year. The government should also work to create new sources of demand, such as batteries for military drones and robotics. Regulations under the Fair Trade Act that hinder voluntary corporate restructuring should also be reviewed. Shifting responsibility entirely onto the private sector risks missing a critical window for action.