SK On inks lithium deal with Australian firm for US tax credit

SK On Co., the world’s fifth-largest electric vehicle battery maker, has signed a deal with an Australian lithium producer. Securing the core battery cell material from an Australian company will make its products eligible for Washington’s EV tax credit that favors batteries with parts made in the US or its free trade partners.

SK On, the unit of South Korea’s No. 2 conglomerate SK Group, said on Thursday it has inked a memorandum of understanding (MOU) for the stable supply of lithium with Australia’s Global Lithium Resources Ltd.

Through the deal, SK On is set to procure spodumene, from which lithium hydroxide can be extracted, for the long term from mines that Global Lithium is operating and developing, although the battery maker did not provide a specific timeframe.

The Australian firm said the term of the non-binding MOU is two years unless it is extended or terminated earlier by mutual agreement or superseded by a definitive agreement related to a joint venture, partnership and/or offtake agreement.

“The agreement will strengthen SK On’s global production and sustainable growth,” said SK On Vice President Ryu Jinsuk in a statement. “Both parties will support each other to accelerate business growth and cooperate further to explore potential opportunities in the EV supply chain.”

FOR US TAX CREDIT

The deal comes as Washington will require a certain percentage of critical minerals used in EV batteries to come from the US or its Free Trade Agreement partners, which include Australia, for the EV tax credit of up to $7,500 per unit, according to the US inflation Reduction Act (IRA).

From next year, EV makers must use batteries with materials sourced primarily in those countries for their cars to be eligible for the tax credit of up to $7,500 per unit.

Qualifying EVs must contain at least 40% of the battery minerals and 50% of the battery components from those countries. The proportion will rise to 80% for minerals by 2027 and 100% for parts by 2029.

SK On’s clients include global automakers such as Ford Motor Co., Volkswagen AG and Hyundai Motor Co.

The IRA prompted South Korea’s LG Energy Solution Ltd., SK On’s larger competitor, to sign battery materials supply deals with three Canadian minerals companies earlier this month.

FURTHER BUSINESS OPPORTUNITIES

SK On and Global Lithium agreed to explore further business opportunities including the potential development of downstream integrated battery-grade lithium assets. The battery maker may have chances to buy stakes in the partner’s projects.

“The scope of this partnership has the potential to strengthen and diversify the future of Global Lithium’s projects in Western Australia both in the near term and in the years ahead,” said Global Lithium Managing Director Ron Mitchell in a separate release.

Global Lithium, founded in 2018, is currently working on the Marble Bar Lithium Project and the Manna Lithium Project in Western Australia. The two mines are estimated to have total lithium reserves of some 500,000 tons, enough for some 12 million EVs.

Australia is the world’s top lithium producer and major miner of other key materials for EV batteries such as nickel and cobalt.

Lithium is a core mineral for battery cathode materials. Its prices have more than tripled to $67,000 per ton this month from about $20,000 a year earlier, according to SK On, as its supply could not keep up with demand amid rapid growth in the global EV industry.

SK On has been seeking battery material deals with other countries such as Canada, Brazil and Argentina to expand supply sources as it continues to expand global production capacity.

Write to Han-Shin Park at phs@hankyung.com
Jongwoo Cheon edited this article.