Korea plans to launch a US 45X-like production tax credit, with battery cells potentially the biggest beneficiary

Overview

Korea's Ministry of Economy and Finance announced a tax reform proposal on August 3, 2026, proposing to provide a production tax credit similar to the US Section 45X AMPC for strategic products produced and sold domestically in Korea. The proposal is planned to be submitted to a regular session of the National Assembly on September 3, 2026, and, if passed, will take effect from January 1, 2027 to December 31, 2036. The policy aims to support domestic industries related to green transition and economic security that currently lack cost competitiveness but have technology and market prospects.

Core views

The report believes that this policy can reduce the cost disadvantage of Korean manufacturing relative to imported products, promote higher domestic capacity utilization in the battery, energy storage, and solar supply chains, and help secure domestic orders. Battery cells have the clearest benefits due to substantial existing idle capacity, growth in energy storage demand, and factories generally being located outside Seoul; the solar industry has opportunities for production reshoring and recovery of domestic share. Battery materials have relatively large theoretical profit leverage, but it can only be realized when companies generate sufficient taxable profit, while intense competition and thin margins limit near-term benefits. Companies related to wind power and small modular reactors may benefit moderately, while the earnings and policy impact for AI robot components remain difficult to quantify.

Analysis framework

The report uses policy clause analysis, a horizontal comparison with the US Section 45X AMPC, analysis of Korea's domestic capacity utilization and market share, and company-level assessment of potential production increase scenarios. The analysis focuses on qualification conditions, credit caps, regional coefficients, credit duration, taxable profit constraints, and the cost structures of different value-chain segments.

Methodology notes

• Policy analysisPolicy event-driven analysis

  Assess changes in industry profitability and capacity utilization through the timing of policy implementation, scope of application, and credit mechanism.

  The report treats National Assembly review, issuance of the enforcement decree, and formal effectiveness as key catalytic milestones, and evaluates policy transmission by value-chain segment.

• Comparative analysisCross-country policy benchmarking

  Compare Korea's production tax credit with the US Section 45X AMPC.

  The Korean proposal has no direct payment or credit transfer mechanism, but allows carryforward for up to 10 years, and sets caps based on production costs and capex as well as regional coefficients for areas outside Seoul.

• Scenario analysisCapacity utilization improvement scenario

  Estimate room for production increases based on existing Korean battery capacity and potential orders.

  On the premise of improved production economics and winning orders such as domestic energy storage, the report estimates the potential production increase scale of major battery companies and its share of expected 2027 shipments.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• LG Energy Solution（373220.KS）

  Directly benefits from Korea's domestic battery production tax credit and growth in energy storage demand.

  Strengths

  Has potential production increase room of 10 to 15GWh and may raise its share of the Korean domestic market.

  Weaknesses

  The estimated production increase accounts for only about 5% of its expected 2027 shipments, limiting the relative contribution at the group level.

  Comparison

  Policy benefit certainty is higher than for most battery materials companies, but the potential production increase as a share of total shipments is lower than SK Innovation.

  Risks

  The policy may not pass, unit credit amounts may be insufficient, domestic order wins may fall short of expectations, or tax items may not be fully utilized.

• SK Innovation（096770.KS）

  Benefits from battery production credits and may receive additional support from tax incentives for SMR R&D and facility investment.

  Strengths

  Potential production increase of 15 to 20GWh, about 45% of expected 2027 shipments, giving it relatively high leverage among major battery companies.

  Weaknesses

  Benefits still depend on securing domestic orders, capacity ramp-up, and sufficient taxable profit.

  Comparison

  Compared with LGES and Samsung SDI, it has the highest potential production increase as a share of expected shipments.

  Risks

  Weak battery demand, failure in energy storage bidding, unfavorable policy implementation details, and SMR projects still being at the feasibility analysis stage.

• Samsung SDI（006400.KS）

  Benefits from domestic battery production credits and expansion of Korea's energy storage market.

  Strengths

  Has potential production increase room of 13 to 14GWh, about 15% of expected 2027 shipments, and already has a foundation for participation in Korean energy storage projects.

  Weaknesses

  Realization of production increases depends on energy storage orders and the extent of domestic production cost improvement relative to imported products.

  Comparison

  The potential production increase share is higher than LGES but lower than SK Innovation.

  Risks

  Changes in EV demand, intensifying energy storage competition, and capacity utilization improvement falling short of expectations.

• Korean battery materials companies

  Domestic production segments such as cathodes and anodes can in principle benefit from production tax credits and regional coefficients.

  Strengths

  Production costs account for a relatively high share of the cost structure, and the report estimates that theoretically they could bring about 20% upside to current net profit forecasts.

  Weaknesses

  Credits can only translate into earnings when companies generate significant taxable profit, while materials margins have been relatively thin recently.

  Comparison

  Theoretical profit leverage is relatively large, but the degree and certainty of benefit realization are weaker than for battery cell companies.

  Risks

  The definition of core materials has not yet been finalized, industry competition is intense, product prices are under pressure, and sustained losses may prevent timely use of tax credits.

• HD Hyundai Energy Solutions

  May benefit from Korea's domestic solar module production credits and import substitution.

  Strengths

  In 2025, its Korean residential solar module and inverter market shares were 26.6% and 55.9%, respectively, and it has about 1.2GW of domestic module capacity.

  Weaknesses

  Most utility-scale modules are contract-manufactured by Chinese manufacturers, and the competitiveness of domestic production costs still awaits policy improvement.

  Comparison

  It has a prominent position in the domestic residential market, but its solar capacity scale is smaller than Hanwha Solutions.

  Risks

  Credit amounts may be insufficient to offset the cost gap with Chinese products, or domestic demand and production reshoring may fall short of expectations.

• Hanwha Solutions（009830.KS）

  May benefit from reshoring of solar cell and module production to Korea.

  Strengths

  Has 5.3GW of solar cell capacity and 2.8GW of module capacity, larger than HD Hyundai Energy Solutions.

  Weaknesses

  Existing capacity is mainly aimed at exports to the US, and the extent of benefits in Korea's domestic market depends on capacity reallocation.

  Comparison

  It has larger capacity scale, but its direct exposure to the domestic market is not as high as HD Hyundai Energy Solutions, which mainly focuses on the Korean residential market.

  Risks

  The cost gap between China and Korea may remain too large, reshoring costs may be high, and policy product scope or unit credit amounts may fall short of expectations.

• Doosan Enerbility（034020.KS）

  Qualified production costs in the wind turbine supply chain may generate tax credits.

  Strengths

  Can benefit from Korea's wind and solar 100GW target being brought forward to 2030 and support for domestic manufacturing.

  Weaknesses

  Specific qualified products and unit credit standards have not yet been announced, making the current earnings impact difficult to estimate precisely.

  Comparison

  The expected extent of benefits is lower than battery cells and solar power, but higher than the AI robot business, which is still at an early stage.

  Risks

  Limited coverage in the enforcement decree, delays in project construction, and order conversion falling short of expectations.

Key data

• Policy application period2027-01-01 to 2036-12-31Credits are 100% from 2027 to 2033, and 75%, 50%, and 25% from 2034 to 2036, respectively.
• Covered fields6 strategic fieldsIncluding semiconductors, solar power, wind power, secondary batteries, core materials, and AI robot components.
• Annual credit capThe lower of two caps50% of annual production costs, or 50% of cumulative production facility capex after deducting credits previously claimed.
• Non-Seoul regional coefficient1.1 to 1.5 timesSpecific regional classifications will be determined in the enforcement decree; most Korean battery and materials factories are located outside Seoul.
• Korean battery cell capacity53GWhThe report estimates that the utilization rate of major Korean battery manufacturers' domestic capacity is below 60%.
• LGES potential production increase10 to 15GWhEquivalent to about 5% of JPMorgan's expected 2027 shipments for the company.
• SK Innovation potential production increase15 to 20GWhEquivalent to about 45% of JPMorgan's expected 2027 shipments for the company.
• Samsung SDI potential production increase13 to 14GWhEquivalent to about 15% of JPMorgan's expected 2027 shipments for the company.
• Korea domestic solar module share20.7%2025 data, lower than 66% in 2021; China's module share rose to 69.3% over the same period.
• Korea domestic solar cell share3.9%2025 data, lower than 35.1% in 2021; China's cell share rose to 96.1% over the same period.
• Korea wind and solar targetReach 100GW by 2030The target year has been brought forward from 2035 to 2030.
• Key policy milestonesSeptember 2026 and February 2027Cabinet review and submission to the National Assembly are expected in September 2026, and implementation details such as unit credit amounts are expected to be announced in February 2027.

Impact & implications

If the policy passes smoothly, the most direct investment implication is lower domestic production costs for Korean battery cell manufacturers, the restart of idle capacity, and enhanced competitiveness for energy storage orders. Solar manufacturers may increase domestic production in Korea as the cost gap between China and Korea narrows, driving recovery in domestic share. For materials companies, the theoretical profit leverage of the credit is high, but actual benefits depend on taxable profit and final product inclusion. Regional coefficients may also give companies with production facilities outside Seoul an additional advantage. Since the credit cannot be directly paid or transferred, the short-term cash benefit for loss-making companies is weaker than under the US IRA model.

Risks

• The tax reform proposal still requires National Assembly review, with risks of not passing, delays, or adjustments to clauses.
• Unit credit amounts, the definition of core materials, qualified products, and regional coefficients must await clarification in the February 2027 enforcement decree.
• The policy only allows offsets against corporate income tax and cannot be directly paid or transferred, limiting short-term benefits for loss-making and low-profit companies.
• Companies must simultaneously meet conditions for core production in Korea, a certain proportion of domestic costs, and domestic sales.
• Whether Korean manufacturers can improve capacity utilization depends on actual acquisition of domestic orders such as energy storage and solar power.
• Chinese imported products may still maintain a significant cost advantage, causing import substitution and production reshoring to fall short of expectations.
• Competition in battery materials is intense and margins are thin, so theoretical tax benefits may not translate into actual net profit.
• AI robots and some new technologies are still at an early stage, and the policy impact lacks a quantifiable basis.

What to watch

• Cabinet review and National Assembly submission progress in early September 2026.
• Whether covered industries, qualification conditions, and credit caps are adjusted during the bill review process.
• Unit credit amounts, qualified product lists, and regional coefficients announced in the February 2027 enforcement decree.
• Korean energy storage bidding results and order shares for LGES, SK Innovation, and Samsung SDI.
• Domestic capacity utilization and production increase plans of major battery manufacturers in Korea.
• Whether the final definition of core materials covers cathodes, anodes, electrolytes, and other key materials.
• Whether Korea's domestic solar module and cell shares can rebound, and whether companies move production back from China to Korea.
• The taxable profit levels of relevant companies and the use of tax credit carryforwards.