In a groundbreaking move, China‘s prominent electric vehicle (EV) battery producer, BYD Co Ltd, is reportedly joining forces with South Korea’s KG Mobility Co Ltd to construct an EV battery plant in South Korea.

Both companies aim to “secure stable battery supplies through the venture,” disclosed an inside source who opted to remain anonymous due to the matter’s sensitive nature.

With mass production expected to kick off in January 2025, according to Bloomberg, this joint effort will be the first-ever alliance between a Chinese battery cell manufacturer and a South Korean carmaker within South Korea’s borders.

The significance of BYD, the world’s second-largest EV battery maker, entering the South Korean market cannot be overstated. South Korea already houses global battery production giants like LG Energy Solution, Samsung SDI, and SK On.

Analyst Kang Dong-jin of Hyundai Motor Securities noted, “It is indeed a significant event, a major cell maker like BYD having production capacity in South Korea.”

He highlighted that while local cell manufacturers are primarily focused on nickel cobalt batteries, BYD’s expertise lies in lithium-iron-phosphate (LFP) batteries, which they might offer at competitive prices.

Moreover, there’s a broader context to Chinese battery companies’ growing interest in South Korea. This year, several firms from China have announced multi-billion dollar projects in South Korea. Why? To effectively navigate the U.S. Inflation Reduction Act (IRA).

This act, targeting a decreased dependency on the Chinese supply chain for EVs, necessitates that a minimum of 40% of an auto battery’s critical minerals value originate either from the U.S. or one of its free trade partners for the vehicle to qualify for a $3,750 tax credit. Given that South Korea enjoys a free-trade agreement with the United States, it presents an advantageous position.

Closing on this trend, Ningbo Ronbay New Energy Technology, China’s leading materials producer for EV batteries, recently unveiled plans to boost the production of cathode materials at its facility in South Korea, further emphasizing the strategic shift towards accommodating the U.S. EV tax credit stipulations.