The European electric vehicle (EV) market is showing signs of recovery, but South Korean battery manufacturers have experienced a decline in shipments. This trend raises concerns that automakers may increasingly favor more affordable Chinese batteries despite stricter carbon emission regulations expected to benefit South Korean producers.
EV Losses and Carbon Emission Fines Drive Shift to Chinese Batteries
According to industry reports on Tuesday, LG Energy Solution estimates its European shipments in January decreased by 15% compared to last year. Similarly, Samsung SDI saw a 26% decline in shipments during the same timeframe.
This decline contrasts with the growth in European EV sales. In January, the European Automobile Manufacturers Association (ACEA) reported a 37.3% year-over-year increase in EV sales across 31 European countries (including the 27 EU nations, the UK, Norway, Switzerland, and Iceland).
Despite the surge in European EV sales, South Korean battery manufacturers have seen their market share shrink. This setback disrupts the plans of Korean battery makers, who had anticipated improved performance this year due to increased EV demand driven by stricter environmental regulations in Europe and benefits from the U.S. Advanced Manufacturing Production Credit (AMPC).
Financial data firm FnGuide reports that LG Energy Solution’s consensus for Q1 2023 projects an operating profit of approximately 40.4 billion KRW ($28 million), a 74.3% decrease from approximately 157.3 billion KRW ($108 million) reported in the same quarter last year. Samsung SDI is expected to post an operating loss of approximately 269.1 billion KRW ($185 million) in Q1, marking its second consecutive quarter in the red.
Analysts suggest South Korea’s battery companies are struggling as Chinese manufacturers gain more influence in the European market. Some argue that this year’s stricter carbon emission regulations have unexpectedly hurt Korean firms.
The European Union (EU) initially planned to reduce the carbon dioxide emission cap for new vehicles by 15% compared to 2021, with a fine of 95 euros (approximately $102) per gram over the limit. Recently, the EU eased regulations by changing the calculation method from annual assessments to a three-year average until 2027, but the core standards remain unchanged.
Kim Hyun Soo, an analyst at Hana Securities, noted, “Automakers, burdened by hefty carbon dioxide fines, are increasingly sourcing low-cost batteries to minimize losses in their EV divisions. This has led to a sharp rise in market share for Chinese companies.”
‘China Exclusion’EU Action Plan Faces Challenges Amid Existing Preferences
The Korean battery industry is cautiously optimistic about the EU’s recently announced automotive sector action plan. The initiative aims to increase the proportion of European-made batteries throughout the supply chain to curb Chinese battery companies’ regional expansion. It also includes 1.8 billion euros (approximately $1.93 billion) in support for battery manufacturers to expand production lines over the next two years.
However, South Korean companies remain uncertain about potential benefits. European automakers have shown a strong preference for Chinese batteries, and Chinese firms are also expanding their production within the EU.
CATL, the world’s leading battery manufacturer from China, plans to establish its third battery joint venture factory in Spain with automaker Stellantis. Fourth-ranked CALB also recently announced plans to build a battery production facility in Portugal.
An industry insider explained, “Unlike the U.S. market, European consumers prefer smaller vehicles and prioritize cost-effectiveness, resulting in high demand for relatively inexpensive Chinese batteries. Given that policies are still not fully defined, it’s challenging to discuss increasing production or additional expansions.”