China keeps EV sector shut for Korean battery producers

South Korean battery producers have again been essentially shut out from the world's largest market for electric vehicles (EVs) after China's government declined to grant subsidies for models equipped with their power packs.

The Chinese ministry of industry and information technology (MIIT) last month granted preliminary approval for five different models fitted with batteries made by South Korea's LG Chem and Samsung SDI. This decision raised hopes that China's booming EV market would be opened to South Korean battery makers for the first time since 2016. But MIIT ruled this week that the five models will be ineligible for government subsidies to car buyers.

In a market where subsidies can be equivalent to as much as 40pc of the price of an EV, not qualifying for the purchase incentives essentially means not being able to compete. This means the four Dongfeng Renault models that employ LG Chem batteries, along with one EV made by Chongqing Jinkang New Energy Automobile that uses a Samsung SDI battery, may need to change suppliers.

An EV supplied by South Korea's other main battery producer SK Innovation was granted approval by China's government last year. But it failed to make the list of vehicles that qualify for the subsidy programme.

At stake is a market that already accounts for more than half of global EV sales and is driving much of the industry's demand growth. Sales of Chinese passenger EVs more than doubled from a year earlier during January-March to 254,000, even as overall car sales slumped.

All three of South Korea's main EV battery producers are expanding their production bases in China in hopes that even if they fail to qualify for subsidies, the playing field will even out when the incentive programme expires in 2020. Keeping top foreign rivals out of the market allowed Chinese battery producers several years to build up their sales without fierce competition.

Chinese companies dominate the largest EV battery producers, with CATL leading the market and BYD third in the first quarter after posting the fastest sales growth in the industry. LG Chem ranked fourth at 2,467.5MWh of capacity sold, according to South Korean research firm SNE Research. Samsung SDI was sixth at 705.2MWh, while SK Innovation was ninth at 447MWh.