General Motor has asked South Korea’s LG Energy Solution (LGES) to revise the terms of their battery manufacturing joint venture in the US to allow it to have a larger share of US government tax credits, according to local reports citing industry sources.

LGES’ share price fell by over 4% on the news in early trade on Friday (1 December).

The reports suggested the US carmaker asked LGES to share up to 85% of the tax benefits available to their US based joint venture Ultium Cell LLC in the form of dividends to help it meet the challenges of switching to zero emission vehicles. Both companies each own a 50% stake in the joint venture, making the request by GM somewhat unusual but not unprecedented.

In exchange, GM was said to have offered to guarantee the joint venture’s profit margin above a certain level.

To help establish a strong domestic electric vehicle (EV) supply chain, the US government’s AMPC programme offers qualifying battery makers a US$35 tax credit per 1 kilowatt hour (KWh) of battery cells manufactured in North America and $10 per 1kWh of battery module/system.

LGES is the first of South Korean three main battery makers to begin production in the US and was said to have earned KRW427bn (US$327m) from the AMPC programme in the first nine months of 2023, equivalent to 23% of its Q3 operating profit.

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The company has stand alone battery cell plants and joint ventures in North America with Hyundai, Stellantis, Honda and GM with 300GWh of capacity scheduled to come on stream in the second half of the decade.

The benefits of the AMPC programme for Ultium Cell are expected rise sharply from next year as additional capacity comes on line. The JV completed construction of its first battery cell manufacturing facility in August 2022, in Warren, Ohio. A second plant, in Spring Hill, Tennessee was scheduled for completion in January 2024 and a third plant was expected to come on line in Q4 2024 in Lansing, Michigan. The combined production capacity of the three plants would be 123GWh, with room for expansion. Plans for a fourth plant were shelved earlier this year.

Industry sources suggested: “It will be hard for LGES to flatly turn down GM’s request, given the industry dynamics.”

Earlier this year Panasonic Holding, the largest US battery supplier, was understood to have agreed to share half of this year’s expected JPY45bn ($304m) AMPC benefits with customer Tesla.

Other South Korean battery makers, including Samsung SDI and SK On, were also expected to come under pressure to share more of the AMPC benefits with their JV partners.
Ultium Cell’s battery plant in Warren, Ohio