South Korea's battery industry calls for targeted support: 'This is the golden hour'

South Korea's National Assembly hosted a forum Wednesday to discuss ways to restore the competitiveness of the country's battery industry, which is struggling with slowing electric vehicle demand and a supply glut driven by Chinese manufacturers. Industry officials and experts said the country must strengthen the effectiveness of its tax credit system and rebuild its industrial strategy around new demand sources such as energy storage systems and AI data centers.

The Korea Battery Industry Association organized the forum, titled "National Assembly Forum on Industrial Strategy for the Re-leap of K-Battery," at the National Assembly Members' Office Building in Yeouido, Seoul.

The event was co-hosted by 10 Democratic Party of Korea lawmakers — Lee Eon-ju, Kim Han-gyu, Bok Gi-wang, Jang Cheol-min, Kwon Hyang-yeop, Song Jae-bong, Oh Se-hee, Lee Yeon-hee, Jeong Jin-uk and Heo Seong-mu — and organized by the Korea Battery Industry Association. It was convened to review changes in the global battery market and the domestic industry's business environment, and to discuss tax reform measures including investment tax credits and direct refunds under a domestic production promotion tax regime.

In his opening remarks, Rep. Song said the battery industry is a core national industry underpinning electric vehicles, energy storage systems, renewable energy, AI data centers and next-generation mobility, but that it is going through a difficult period due to slowing EV demand, Chinese oversupply and rising protectionism in major economies.

He added that because the battery industry requires large-scale preemptive investment, conditions must be created that allow companies to invest boldly with an eye on the future. He said the National Assembly would strengthen policy support to ensure that domestic production and investment continue, including by improving the effectiveness of tax support measures such as direct refunds of investment tax credits.

Kim Cheol-jung, head of the strategic industries team at Mirae Asset Securities, delivered the first presentation. He said the global battery market is rapidly expanding beyond electric vehicles into energy storage systems, AI data centers, humanoid robots, defense and eco-friendly transportation, and that the range of demand sources for batteries is broadening significantly.

Kim said the recent slowdown in the EV market is difficult to attribute simply to a temporary demand chasm. He said demand trends are diverging by region as policy environments shift in the United States, China and Europe. He particularly noted that the resumption of EV subsidies in Europe and a high oil price environment could revive the appeal of electric vehicle purchases.

On the energy storage system market, Kim expressed strong optimism about its growth potential. He said ESS could emerge as a key growth engine for the battery industry as the expansion of renewable energy and rising investment in AI data centers converge. Global ESS demand is forecast to grow from 312 gigawatt-hours in 2024 to 847 gigawatt-hours in 2028. ESS is also expected to increase its share of the overall battery market from 26 percent in 2024 to 35 percent in 2026.

Kim also said that major economies' efforts to check China are expanding beyond finished electric vehicles to batteries and the broader supply chain. He said the growing push to reduce reliance on Chinese batteries in the North American ESS market could create opportunities for South Korean battery companies to win more orders.

An Jeong-hye, an attorney at law firm Yulchon, delivered the second presentation and said the country's approach to tax support needs to change. She said direct-refund tax credits are "not a matter of choice but of timing," and said the current tax credit system has clear limitations.

She cited the United States' Advanced Manufacturing Production Tax Credit under the Inflation Reduction Act and Canada's Clean Technology Investment Tax Credit as examples, saying major competitor countries provide companies with substantive cash support through direct-refund tax credits.

By contrast, she said, South Korea's system applies deductions only within the scope of corporate taxes owed and carries forward unused amounts, making it difficult for loss-making companies to benefit fully.

Battery companies in particular are seeing their profitability deteriorate due to slowing demand and aggressive low-price competition from Chinese manufacturers. Given the industry's nature — where large-scale investment must come first — there are concerns that if tax credits simply accumulate without translating into actual improvements in cash flow, companies' capacity to invest will shrink.

An proposed that a range of design approaches be considered for introducing direct-refund tax credits, including output-linked, investment cost-linked and hybrid models. She also put forward the option of providing support based on investment costs in the early stages and then switching to an output-based standard once mass production begins.

Within the industry, there is growing recognition that the battery sector faces not just short-term earnings weakness but a challenge to its investment competitiveness. While EV growth has slowed, Chinese companies are expanding their market share on the strength of price competitiveness, and the United States and Europe are accelerating the restructuring of their supply chains around domestic production. This is the backdrop for calls for policy design that protects South Korea's domestic production base, core workforce and the materials, components and equipment ecosystem.

The panel discussion addressed specific issues facing the domestic battery industry. Kim Nam-ho, a senior vice president at LG Energy Solution, raised the need to introduce direct-refund tax credits; Noh Myeong-ho, a group leader at Samsung SDI, raised proposals to improve tax credits for research and development costs and facility investment. Yoon Young-du, an executive vice president at SK Innovation, raised the need to revitalize the domestic ESS industry and provide effective tax support, while Choi Woo-young, a division head at Ecopro, called for expanded tax support for overseas refining and smelting operations and the need for the government to develop a comprehensive battery policy.

An Wan-gi, a chair professor at Korea University of Technology and Education who moderated the discussion, said the battery industry is a strategic industry that determines national industrial competitiveness and energy security, and that it requires long-term industrial policy beyond short-term market responses.

He added that beyond tax support, policy finance, investment funds, supply chain stabilization and support for next-generation technology development must be organically linked. He said a sustainable support framework needs to be built through cooperation among the government, the National Assembly and the industry.

Lee Hee-yeop, a senior executive at the Korea Battery Industry Association, also said the scope of support needs to be broadened. He said support is needed across a range of areas including research and development and energy storage systems, alongside improvements to the effectiveness of the tax credit system.

He proposed that direct refunds of investment tax credits be considered as a priority to improve the effectiveness of tax support, and that direct refunds under the domestic production promotion tax regime also be reviewed as a practical complementary measure. He said field-specific support policies — including expanding the ESS demand market, supporting overseas refining and smelting investment, and expanding materials, components and equipment research and development — need to be pursued in a timely manner.