By Jacky Wong

South Korean battery makers have benefited from President Biden's signature climate bill, the Inflation Reduction Act. Donald Trump's reelection brought some uncertainties to them, but it may not be all bad.

These makers of batteries for electric vehicles and other advanced applications have seen their shares plunge since Trump was elected. Samsung SDI's share price has dropped 23% in the past month while LG Energy Solution's has lost 9%. On the campaign trail, Trump railed against subsidizing the purchase of electric vehicles and has even said he may repeal the IRA.

The benefits to battery makers from the law are twofold: The tax credit has boosted demand for EVs, which indirectly helped battery sales. More important, the IRA has also provided subsidies for batteries made and sold in the U.S., spurring an investment boom. The Korean battery makers, in particular, have heeded the call. By 2027, Samsung and LG will have more than 40% of their total production capacity based in the U.S., according to Bernstein.

A wholesale repeal of the IRA seems unlikely. The IRA's investments are concentrated in traditional Republican and swing states, creating jobs there. Research firm Benchmark Mineral Intelligence said that 92% of the $110 billion spent is in red states while 7% is in Democratic ones. Samsung SDI and Stellantis, for example, are investing more than $3.2 billion on a plant in Indiana. LG also partnered with Hyundai Motor to spend $7.6 billion building manufacturing facilities for EVs and batteries in Georgia.

Trump could still make tweaks to the IRA, with the $7,500 EV purchase tax credit most at risk, perhaps to help pay for other tax cuts. That would certainly hit the battery makers by slowing EV sales. According to Bernstein, 24% of Samsung SDI's EV batteries are installed in cars that are eligible for the subsidies.

But Trump's favorite policy -- tariffs on Chinese imports -- may help to offset that. China's Contemporary Amperex Technology, or CATL, currently accounts for 10% of the U.S. battery market, said Bernstein. Under higher tariffs, locally produced Korean batteries, with help from production subsidies, will be able to compete with the Chinese rivals.

Energy-storage systems are another area that could potentially soften the blow of slower EV sales in the U.S. Operators added five gigawatts of utility-scale battery energy storage to the power grid in the first seven months of this year, bringing the total in the country to 20.7 gigawatts, according to the U.S. Energy Information Administration.

Rising renewable energy production has increased the need for batteries in the grid to balance out supply and demand. Energy-hungry artificial intelligence data centers create additional demand for battery systems. Nomura expects energy-storage systems capacity to grow 42% a year globally until 2030. Nearly half of that is in China, but the U.S. will still make up around 17%.

And the Korean battery makers may still benefit from growing EV sales outside of the U.S., particularly in Europe. LG competes neck to neck with CATL as the biggest EV battery maker outside of China. The three Korean battery manufacturers -- LG, Samsung and SK On -- together have nearly half of the global EV battery market excluding China, according to SNE Research.

Finally, Korean stocks generally face new political risks after the aborted declaration of martial law. But Western countries need to get their batteries from somewhere, and South Korea is likely to remain a politically favorable choice compared with China regardless of its domestic political situation.

Korea's battery makers look poised for a recharge. The recent decline in their shares could be an opportunity for investors.

Write to Jacky Wong at jacky.wong@wsj.com

(END) Dow Jones Newswires

December 04, 2024 09:00 ET (14:00 GMT)

Copyright (c) 2024 Dow Jones & Company, Inc.