South Korean battery companies are navigating the risks posed by the U.S. Foreign Entities of Concern (FEOC) regulations under the Inflation Reduction Act (IRA).

South Korean battery companies have established over 20 joint ventures and collaborative projects with Chinese firms to secure access to critical battery materials like precursors, which are heavily reliant on China. However, the U.S. is expected to include restrictions on the ownership allowance for Chinese companies in joint ventures under the FEOC regulations, potentially limiting Chinese influence in the U.S. EV supply chain. The ownership stake for Chinese firms in these joint ventures is expected to be capped at 25-50%.

This poses a challenge for South Korean companies, as they may need to invest several trillion won to increase their ownership stake in these joint ventures up to 75% to comply with the FEOC rules and qualify for IRA tax benefits. South Korean battery makers like LG Energy Solution, SK On, and POSCO have significantly increased their joint venture investments with Chinese firms to try to circumvent the IRA restrictions and qualify for subsidies.

The South Korean government has reacted positively to the IRA rules, recognizing the need for its battery industry to realign supply chains and increase domestic ownership to maintain access to the U.S. EV market.

In summary, South Korean battery companies are navigating the FEOC risks by restructuring their Chinese joint ventures to increase domestic ownership, while also expanding investments in the U.S. and other markets to diversify their supply chains and qualify for IRA incentives.