As demand for electric vehicles slows and competition from Chinese batteries intensifies, uncertainty looms over South Korea's battery industry. However, the U.S. energy storage system (ESS) market may present a new opportunity, driven by the expansion of renewable energy and the growth of artificial intelligence (AI) data centers.
The Korea Institute for Industrial Economics and Trade highlighted these trends in a report released on August 27, titled 'K-Battery: Crisis or Transition?'
Recent performance issues in the South Korean battery sector have become increasingly apparent. In the first quarter of this year, LG Energy Solution, Samsung SDI, and POSCO Future M reported operating losses of 207.8 billion won, 155.6 billion won, and 1.1 billion won, respectively.
Despite a global increase in demand, South Korean battery companies continue to struggle due to simultaneous disruptions in the electric vehicle market and the growth structure centered around nickel-cobalt-manganese (NCM) batteries. The contraction of the U.S. electric vehicle battery market, where South Korean firms have heavily invested, has particularly impacted their performance.
U.S. electric vehicle sales growth rates have plummeted, with a decline of 31% in the fourth quarter of 2025 and 23% in the first quarter of 2026, largely due to the elimination of tax credits for electric vehicle purchases. This decline has significantly affected South Korean battery companies that have concentrated much of their investment in the U.S. over the past few years.
On the product front, the competitiveness of South Korea's flagship NCM batteries has weakened. In the European battery market, South Korean companies' market share is projected to drop from 55% in 2023 to 35% by 2025, while Chinese companies are expected to increase their share from 42% to 61% during the same period. The growing demand for mid-range electric vehicles has favored Chinese lithium iron phosphate (LFP) batteries, which are more competitively priced.
Amid these challenges, the ESS market is emerging as a new growth area. The global ESS market is expected to grow from 185GWh in 2023 to 1,449GWh by 2035, with the increasing share of renewable energy necessitating solutions for intermittent power generation. Additionally, the expansion of AI data centers is driving demand for uninterruptible power supplies (UPS) and large-scale ESS.
Particularly, the U.S. ESS market is projected to grow significantly, from 55GWh in 2023 to 320GWh by 2035, with the UPS market for AI data centers expected to expand at an annual rate of 47%, reaching 135GWh by 2035. This is close to the projected 156GWh for ESS in power grids at that time.
Currently, the global ESS market is dominated by Chinese companies, which have advantages in the supply chain and manufacturing costs of LFP batteries. However, the competitive landscape may shift in the U.S. market. Starting in 2026, the U.S. will impose an additional 25% tariff on Chinese batteries used in ESS under Section 301 of the Trade Act. When combined with tariffs related to forced labor, the total tariff rate on Chinese ESS products could reach 40.9%, significantly higher than the 12.5% tariff on South Korean ESS products.
Moreover, the U.S. has maintained the Advanced Manufacturing Production Tax Credit (AMPC) for domestically produced batteries and introduced policies to restrict the Chinese supply chain through the Prohibition of Foreign Entities (PFE) regulation. This could favor South Korean battery companies with local production capabilities.
However, the U.S. ESS market may not immediately translate into a turnaround for South Korean companies. Chinese firms still hold a significant cost advantage in LFP manufacturing. Nevertheless, if the high tariffs on Chinese imports, the AMPC, and PFE regulations work in tandem, the price gap between Chinese imports and South Korean domestically produced products could narrow or even reverse.
To establish the U.S. ESS market as a new growth pillar for K-batteries, it is essential to not only expand local production in the U.S. but also enhance the competitiveness of the domestic battery materials industry. As PFE regulations tighten, the ability to build a supply chain free from reliance on China, encompassing not just cell production but also materials and key minerals, will be crucial for competitiveness in the U.S. market.
Hwang Kyung-in, head of the Strategic Industry Analysis Office at the Korea Institute for Industrial Economics and Trade, stated, 'To seize opportunities in the U.S. ESS market, strengthening the competitiveness of the domestic materials industry is vital.' He emphasized that for South Korean battery companies to effectively increase investments and enhance price competitiveness against China, detailed guidelines should allow for direct refunds and third-party transfers of domestic production tax credits.
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.