Korean Battery Makers Face Challenges Amid EU’s New Industrial Policy
As the European Union rolls out the Industrial Accelerator Act (IAA), an initiative akin to the US Inflation Reduction Act, the focus is on reshaping the landscape of electric vehicle production within Europe. However, the act might not disrupt the entrenched Chinese supply chain as much as anticipated.
The IAA mandates that a minimum share of production for electric vehicles and other clean-energy technologies occur within Europe when publicly funded. This regulation, expected to be effective six months post-adoption, aims to reduce China’s influence in the European market, where Chinese brands held a 12.8 percent share as of November last year, according to Bloomberg.
Under the new proposal, electric vehicles bought by European governments must undergo final assembly within the European bloc, with at least 70 percent of their components, excluding the battery, sourced locally. While this affects only public procurement for now, experts suggest it could extend to private purchases.
“Although the EU currently applies these constraints only to public purchases, if local component sourcing proceeds smoothly without major issues, there is more than a 90 percent chance that similar rules will be extended to the private EV market,” said Lee Ho-geun, an automotive engineering professor at Daeduk University.
The exclusion of batteries from the local production requirement underscores Europe’s reliance on cost-effective Chinese vehicles and batteries. Completely blocking Chinese imports could lead to higher consumer costs, a scenario the UK faced when it postponed its net-zero vehicle target to 2035, fearing increased household expenses by up to 10,000 British pounds.
Impact on Korean Manufacturers
The IAA permits vehicles equipped with Chinese batteries to qualify for public procurement if other criteria are met. This scenario allows companies like CATL to continue supplying cost-effective batteries to Europe, posing challenges for Korean firms such as LG Energy Solution, Samsung SDI, and SK On, despite their manufacturing presence in Poland and Hungary.
Recent data from SNE Research indicates a sharp decline in the market share of these Korean firms in Europe, from 71 percent in 2021 to 45.1 percent in 2024, with Chinese competitors overtaking them for the first time. By 2025, their share had decreased further to approximately 35 percent.
“While the current IAA is unlikely to have a direct impact, it does little to favor Korean battery makers,” said an industry insider. “The policy signals that Europe cannot ignore China’s price competitiveness in EVs and batteries.”
Yet, the legislation could still impose certain restrictions on further Chinese expansion. Investments over 100 million pounds from countries commanding more than 40 percent of global production capacity, including China, may face additional scrutiny or ownership restrictions. This could affect companies like CATL, which is already expanding its footprint in Europe.
Meanwhile, Hyundai Motor Company and Kia face potential long-term implications. The automakers, who exported 82.8 percent of their 183,912 EVs sold in Europe last year from Korea, might have to increase local production if the IAA’s rules extend to the private sector.
“Even though the 70 percent ‘Made in Europe’ rule currently applies only to public procurement, Hyundai and Kia will likely need to accelerate the localization of EV production in Europe if such rules expand to the private market,” Lee added.
Original Story at www.koreaherald.com