Tesla to buy more EV battery materials from Korea for US Federal tax benefits

Tesla is planning to buy more battery materials from South Korea for its electric vehicles (EV) in order to gain the U.S. Federal tax credit for most of its models.

Kedglobal reports that EcoPro Materials, a precursor manufacturer, said it has signed a mid-to-long-term supply partnership contract with a U.S. carmaker. The company has not announced the name of the car company in the regulatory filing on Monday.

EcoPro wrote that the deal’s aspects including the volume and prices are yet to be decided. However, the supplies will be processed based on the customer’s requirements.

The filing suggests that Tesla could be a potential customer to mark this deal after their conversation through the past year. It is also revealed that the two companies are still negotiating on some aspects including delivery volume.

Federal Tax Credit:

Last year, the U.S. Treasury Department updated guidance for Federal tax credits on electric vehicles. One of these new rules requires EV makers to make vehicles with batteries produced inside the U.S. or any country that signed a free trade agreement with the U.S.

Due to these new changes, Tesla has lost $7,500 in federal subsidies on the Tesla Model 3 sedan, its one of the best-selling cars. Sourcing materials from Korea would help the company produce more batteries at its Giga factory and get back on the federal tax credit train.

Battery precursor materials are the raw materials used to manufacture cathode active materials. These precursor materials undergo various chemical and physical processes during production to yield the final cathode material.

These materials account for 70 percent of production costs for the positive end of a lithium-ion battery. Chinese companies currently rule over the precursor market with their mines and low labor costs.

To cope with the competition, EcoPro Materials planned 957.3 billion ($719 million) by August 2025 to set up a new precursor production line.