(Yicai Global) Sept. 5 -- GEM, one of China's biggest suppliers of battery raw materials, will join with its South Korea partner to build a lithium-ion battery materials plant in response to the US government's decision to subsidize carmakers that source battery ingredients from a list of countries that does not include China.

The plant would be built and operated in South Korea by a new joint venture with cathode materials supplier EcoPro to secure the key Korean market in the wake of the latest US policy, Shenzhen-based GEM said yesterday, citing the agreement it signed on Sept. 2 with EcoPro and the Pohang city government.

The plant will produce manganese-nickel-cobalt compounds and use them to further produce ternary precursor material, which is a key raw material for Cheongju-based EcoPro. Ternary precursor material is used to make cathode used in power batteries.

Apart from saying it will be the majority shareholder, GEM gave little more detail about the JV. The Pohang government will help the new firm buy land for the project and address residents’ potential concerns about the new plant, GEM added, noting that per the agreement, the JV will work hard to create more local jobs.

The Inflation Reduction Act that came into effect on Aug. 16 states that US consumers may be able to claim a USD7,500 clean vehicle tax credit, if the maker used raw materials and other key components of the power battery from countries that have free trade deals with the United States. China is not one of them.

The law threatens the business models of GEM and its South Korean partners, since GEM makes most of its products in its home country, and something has to be done in the new policy environment.

GEM is the main supplier of raw materials to EcoPro, who is in turn a major supplier to power battery maker Samsung SDI. The company is expected to supply EcoPro BM, a subsidiary of EcoPro, with about 700,000 tons of ternary precursor material from 2023 to 2026, according an agreement signed by the two back in March.

South Korea has already become GEM’s biggest export market, thanks to its partnership with EcoPro.

GEM's stock price [SHE: 002340] closed 1.3 percent up at CNY8.33 (USD1.20) in Shenzhen today. GEM was one of the first Chinese firms to list on the Six Swiss Exchange, where its shares [SIX: GEM] ended at USD11.90 on Sept. 2.

Editor: Futura Costaglione