Amid an escalating trade war between Washington and Beijing, Korean battery manufacturers are struggling with slowing operations in China, exacerbated by an already sluggish demand for electric vehicles.

Despite mounting pressure to cut costs and boost profits, industry insiders suggest that companies cannot significantly downsize their Chinese facilities due to their strategic importance.

“Currently, batteries made in China are not shipped to the US due to the Inflation Reduction Act. However, manufacturers remain highly dependent on sourcing and processing raw materials there,” an industry source said on condition of anonymity. “For instance, Samsung Electronics, which uses Samsung SDI batteries in its TVs and smartphones, is relatively free from these sourcing issues. But that is not the case for battery makers.”

Samsung SDI, one of Korea’s three major battery manufacturers, operates four production plants worldwide — two in Korea, one in Hungary and one in China. The Xi’an plant in central China produces prismatic cells for energy storage systems (ESS) as well as batteries for electric vehicles that are exported to Europe and Asia.

“The EV market slowdown has significantly reduced the overall production output of Samsung SDI’s factories. The Xi’an facility, in particular, has become a white elephant due to the ongoing US-China (trade) conflict,” said a source close to the matter on condition of anonymity.

The company reportedly had plans to expand the capacity of the Xi’an facility, which primarily manufactures products for ESS applications, to supply batteries for Hyundai Motor’s upcoming Genesis GV90. However, it was reported that the expansion plan has not yet been finalized.

LG Energy Solution, the largest Korean battery investor in China, operates three manufacturing plants in Nanjing, producing cylindrical and pouch cells for electric vehicles and ESS. Last year, it also began producing lithium iron phosphate (LFP) batteries for ESS applications for shipment to China, Korea, and other Asian countries.

Although LG Energy Solution has not disclosed the utilization rate of its Nanjing facility, the average utilization rate across all LG factories fell to 59.8 percent in the third quarter of 2024, down from 69.3 percent the previous year. A Chinese media outlet reported mass layoffs at LG Energy Solution last November, though the company described the move as routine employee restructuring under normal business conditions.

Meanwhile, SK On operates three battery cell joint ventures with China’s Beijing Automotive Group and EVE Energy. The company is set to begin mass production at its Yancheng plant in the first half of this year. China’s Geely Auto is reportedly considering a supply agreement with SK On, among other potential partners.

Korea’s reliance on Chinese battery minerals became evident when Hyundai Motor’s Ioniq 5, Ioniq 9, and Genesis GV70 were excluded from the list of EVs eligible for US subsidies last month.

Their SK On batteries are currently assembled in Hungary, a country without a free trade agreement with the US, making buyers ineligible for the $7,500 subsidy per purchase under the IRA regulations.

“Many factors, including the Chinese origin of the graphite used in the batteries, seem to have contributed to the subsidy cuts,” said an industry source close to the matter on condition of anonymity.

An SK On official, however, refuted this claim, citing the US government’s recent decision to delay restrictions on Chinese materials until 2026 to mitigate the immediate business impact.

In 2023, Korea imported over 95 percent of its graphite — an essential material for lithium-ion battery anodes — from China. Korean battery material suppliers have struggled to develop artificial graphite as a viable alternative, especially given the nearly 30 percent price gap between domestic and Chinese sources.

Despite challenges, the Chinese bases of Korean battery manufacturers remain vital for their expansion into emerging markets, where automakers are recalibrating their EV strategies amid the global industry slowdown.

“Hyundai Motor, Kia, and other global OEMs are shifting their EV market focus beyond North America and Europe to India, Southeast Asia and other regions with high growth potential,” said Yang Min-ho, an energy engineering professor at Dankook University. “Battery manufacturers could penetrate these markets — free from geopolitical risks —with cost-competitive batteries, leveraging China’s low-cost labor and production efficiency.”

An LG Energy Solution official also noted that the company’s Chinese base will serve as a key global hub, effectively addressing growing demand from the ASEAN region.

As of 2023, LG Energy Solution’s largest market was Asia, accounting for 50 percent of its sales, followed by Europe. Samsung SDI derived 47 percent of its sales from Europe. Meanwhile, China accounted for approximately 10 percent of the total market share for both companies.

SK On declined to provide specifics, citing confidentiality.