The recent discontinuation of electric vehicle (EV) subsidies in the U.S. is sending shockwaves through the Korean Battery (K-Battery) industry. American automakers are pushing back their electric vehicle development and sales plans, resulting in delayed battery plant operations and even the termination of supply contracts.
K-Battery manufacturers now face a critical challenge: dramatically reducing battery costs to help electric vehicles achieve price parity with traditional gas-powered cars.
Industry sources reported on Friday that LG Energy Solution has terminated a 9.6 trillion KRW (approximately 6.5 billion USD) battery supply contract with Ford. The original plan to provide Ford with 75 GWh of EV batteries from January 2027 to December 2032 has been scrapped by mutual agreement.
The canceled deal represents 28% of LG Energy Solution’s projected annual consolidated revenue for 2023. The batteries in question were nickel-cobalt-manganese (NCM) pouch-type cells produced at LG’s plant in Wrocław, Poland. They were slated for use in Ford’s next-generation E-Transit electric commercial van in Europe. However, the remaining 34 GWh from the companies’ total 109 GWh agreement (for 2026-2030) will stay in place.
The substantial reduction in the contract between LG Energy Solution and Ford reflects a major shift in Ford’s electrification strategy. The automaker has pivoted from a focus on battery electric vehicles (BEVs) to hybrid electric vehicles (HEVs) that retain internal combustion engines.
On Monday, Ford announced via its website that it would scrap plans for its next-generation electric pickup truck (T3) and electric commercial van, citing profitability concerns. Ford’s decision to abandon the next-gen electric van development has effectively wiped out LG Energy Solution’s related supply volumes.
Ford is also halting production of its F-150 Lightning electric pickup truck. Instead, the company plans to develop a range-extended electric vehicle (EREV) as the Lightning’s successor. This type of vehicle runs on electric power but uses a gasoline generator to charge the battery, addressing charging infrastructure concerns and extending the driving range to an impressive 1,000 km (about 621 miles). With a battery capacity 30% smaller than pure electric vehicles, EREVs could significantly lower vehicle prices.
U.S. Subsidy Halt Slashes EV Sales by 30%… SK On and Ford Liquidate Joint Venture, Each Going Their Separate Ways
Industry experts widely agree that the Donald Trump administration’s decision to withdraw EV subsidies was a pivotal factor in Ford’s strategic shift. The administration amended the Inflation Reduction Act (IRA), originally enacted during the Joe Biden presidency, prematurely ending the 7,500 USD EV purchase subsidy on September 30, seven years ahead of schedule. This policy change has contributed significantly to the decline in EV sales.
Market research firm Cox Automotive reports that U.S. electric vehicle sales plummeted by 30% year-over-year in October, totaling just 74,835 units. The F-150 Lightning was hit particularly hard, with November sales in the U.S. nosediving 72% compared to the previous year, moving only 1,006 units.
SK On has also felt the ripple effects of Ford’s electric vehicle production cuts. The company recently decided to separate its joint venture with Ford, Blue Oval SK, and independently own and operate its U.S. production facilities. SK On and Ford established Blue Oval SK in 2022, jointly operating plants in Tennessee and Kentucky that produce NCM batteries.
Once regulatory approvals are finalized by the end of Q1 next year, SK On will take ownership of the Tennessee plant, while Ford will operate the Kentucky facility. For SK On, this marks the establishment of its second independent battery plant in the U.S., following its Georgia facility. However, the company now faces the challenge of securing new orders from other customers to offset the reduced volumes from Ford.
The U.S. EV market is expected to remain sluggish in the near term. According to S&P Global, pure electric vehicles (BEVs) accounted for only 7.5% of the U.S. new car market as of mid-year. Even when including plug-in hybrid electric vehicles (PHEVs), the figure barely reaches 10%. S&P Global forecasts this share will actually drop from 10% to 9% by year-end.
In a recent report, Cox Automotive emphasized that tax credit subsidies have been a crucial catalyst for electric vehicle adoption in the U.S. The firm noted that the market now faces a critical test to determine whether it has matured enough to grow independently without government support.
The battery industry is grappling with the challenge of reducing costs, as batteries typically account for 35-40% of an EV’s total price.
LG Energy Solution has broken new ground in the domestic battery industry, securing an order for lithium iron phosphate (LFP) batteries from France’s Renault Group last July. Production is set to begin next year. The LFP market has been dominated by Chinese battery makers like CATL, thanks to lower costs compared to NCM batteries.
Samsung SDI is developing LFP batteries for electric vehicles, targeting mass production in 2028. The company is currently in talks with potential customers regarding orders. Meanwhile, SK On plans to enhance its competitiveness by reducing the nickel content in its existing NCM batteries, focusing on high-voltage mid-nickel batteries as a cost-effective alternative.