As China plans to phase out subsidies for electric vehicles by 30 percent by the end of 2022 and completely eliminate them starting 2023, South Korean battery trio -- LG Energy Solution, Samsung SDI and SK On -- are bracing for potential impact.

According to industry sources Wednesday, China’s U-turn on EV subsidies indicates its confidence about the local EV market‘s ability to survive without state support and its determination to sort out low-quality EV battery manufacturers.

However, the move is expected to trigger unwanted competition for the Korean battery trio overseas, as Chinese battery manufacturers will have to find somewhere else to sell their products to offset the impact of the subsidy cut.

“In 2023, China’s EV market is set to freeze instantly and CATL, which sells 75 percent of its batteries at home, will suffer a sales shock,” said Yoon Hyuk-jin, an analyst at SK Securities. “Starting this year, Chinese battery makers including CATL will trigger a cutthroat competition to land orders in foreign markets.”

Upon China’s EV subsidy rollback, SK On, which produces almost half of its batteries in the country, welcomed the news.

“When China stops providing subsidies, it will level the playing field and allow us to gain an edge against local battery makers with superior technology,” an SK On official said.

Until now, the Chinese authorities granted subsidies mostly to EVs powered by homemade batteries. EVs mounted with Korean-made batteries were excluded from the subsidy program for most of the time. The discriminatory policy was intended to nurture the growth of domestic battery companies.

China’s removal of EV subsidies will no longer motivate local automakers to opt for locally-made batteries when more advanced Korean ones are available, according to the SK On official.

However, SK On might not want to get its hopes up too high just yet, as China has a track record of frequently overturning its policy.

“China’s EV subsidy program was expected to expire in 2020, but it was extended for an additional two-year period. There’s no guarantee that China won’t do the same in 2023,” an industry official said.

“Also, it would naive to think that China would let Korean battery makers take the initiative on its home ground. Even if it eliminates the EV subsidy program, China will do whatever it takes to keep Korean competitors in check.”

Though Chinese battery makers are gearing up for an aggressive global expansion this year, Korean players have already made preparations to avoid competition by setting up production facilities in the US, a market that is out of reach for Chinese companies.

Samsung SDI in October partnered up with Stellantis to set up a US joint venture to produce EV batteries starting 2025, joining its crosstown rivals LG Energy Solution and SK On to produce EV batteries directly in America. LG Energy Solution and SK On have already formed joint ventures with General Motors and Ford, respectively.

The problem is Europe. As the US market is blocked, Chinese battery makers might target the continent for their expansion, but European carmakers might not be so friendly, experts say.

“Top-tier Chinese EV battery manufacturers such as Guoxuan, EVE and Farasis are already in production in Europe. But other low-tier Chinese EV battery makers can’t offer the level of technology European automakers are looking for. It’s unlikely for Chinese EV battery players to suddenly enter the European market, so Korean battery makers are in safe hands,” said Seo Jung-kyu, general manager at market tracker SNE Research.

Currently, LG Energy Solution has an EV battery plant in Poland, while Samsung SDI and SK On facilities are located in Hungary.