The EV Chasm and Korea’s Battery Sector: A Deep Dive into the Current Slump

Concerns over the recent downturn in the battery industry are growing, primarily due to the slowdown in the electric vehicle (EV) industry, which accounts for 70 to 80 percent of total battery demand. The market for battery electric vehicles (BEVs), or cars powered entirely by rechargeable batteries, has entered a contractionary phase in Europe, has shrunk by 2.2 percent in the first half of 2024. BEV sales growth has also fallen off in the United States, recording just four percent growth in the first half of 2024, a steep decline from the 54-percent-growth figure posted in 2023. Battery makers had a rough 2024, largely due to the slowdown in BEV sales as well as price declines caused by falling prices for minerals and other key battery ingredients. There are some positives, however, including the prospect for a demand recovery in Europe as the bloc introduces stricter regulations on carbon emissions, and as the prices of important raw materials begin to stabilize. But the second administration of current US President Donald Trump poses an enormous risk to battery makers worldwide. Up to this point, American battery demand has lifted the fortunes of South Korean battery makers. But if the Trump administration follows through with its threats to repeal, revise, or retract some of the critical incentives of the Inflation Reduction Act, demand for Korean batteries could collapse, sending shockwaves through the industry. Nevertheless, batteries are poised to remain a core technology in global electrification, decarbonization, and digital transformation efforts, and in the long run, the industry is likely to continue down a path of structural growth. This paper proposes a two-pronged policy package designed to help Korean battery makers navigate these choppy waters. First, it is essential for South Korea to persuade the new US administration to shape future battery policies in a way that is favorable to South Korea by emphasizing the achievements of Korean investments in the United States and Korean companies’ efforts to establish a battery supply chain outside the Chinese sphere of influence. Second, since the market is likely to rebound at some point, it is crucial to expand tax incentives and increase R&D funding to ensure that Korean companies can continue making investments even during periods of business turbulence.