The COVID-19 outbreak has only accelerated the transition to electric vehicles, as major automakers stay on course for the change, benefiting Korean battery makers along the way.

Despite resistance from internal combustion engine industries in Europe and the US citing market struggles from the pandemic, key auto brands are using the situation as an opportunity to take out their ill-prepared competition. The move consequently has brightened the outlook for Korean electric vehicle battery giants -- LG Chem, Samsung SDI and SK Innovation.

On March 25, the European Automobile Manufacturers’ Association (ACEA) and three other automobile-related associations sent a letter to the European Commission to delay its carbon dioxide targets for internal combustion engine vehicles to help ease the burden.

However, three of the world’s largest players from Germany -- Volkswagen, Daimler and BMW, who are also ACEA members -- opposed the relaxation of CO2 emission rules.

“Automakers equipped with advanced EV technology must have thought that it would be better to retain carbon dioxide regulations and take initiative of the market before others, considering the massive investments they have already made as the transition to EV will eventually come, though it can be slowed by six months or a year by the COVID-19 effects,” a SK Innovation official said.

According to the European Commission, the rule requires new cars in Europe to emit no more than 95 grams of carbon dioxide per kilometer on average.

In 2020, the emissions target applies for 95 percent of each manufacturer’s cars (in the order of emission level, with the top 5 percent of the emitting vehicles exempted), and then 100 percent in 2021. Every gram of carbon dioxide above the target is met by a penalty of 95 Euros ($104) per vehicle.

“The legislation for the carbon dioxide fleet targets in the EU has been passed. For the Volkswagen Group, the current legal situation is decisive. We are continuing our efforts to achieve the fleet targets for 2020 and the years beyond,” said a spokesperson of Volkswagen in response to the letter a few days later.

The call for regulation relief was eventually put to an end by the European Commission’s official statement.

“The commission is determined to use all the policy tools at its disposal to help protect citizens and mitigate the coronavirus pandemic’s severely negative socioeconomic consequences. We must also ensure that the recovery is as sustainable as possible -- both economically and environmentally,” the executive body’s spokesperson said.

The European Commission’s decision came as a reassurance to Korean battery makers that have been expanding their production capacity at full throttle in Europe.

“Unless COVID-19 prolongs for more than six months, automakers will have no problem delivering EV batteries in full capacity from Korean battery makers,” an industry source said.

“Korean EV battery firms’ production plans are irrelevant to environmental regulations. Their plans depend on how many orders they win from automakers,” the industry source added.

In contrast to Europe’s decision to stay on course, the US is seeking a drastic turn in its environmental policy.

On March 31, the White House formalized plans to roll back fuel economy standards established during the previous Obama administration.

According to a statement by the US Environmental Protection Agency and Department of Transportation, the new rule will require fuel efficiency of 17 kilometers per liter of gas instead of 23 kilometers for new vehicles in the country by 2026.

To the US’ sudden policy shift, Korean battery makers showed mixed responses.

“President Donald Trump’s decision may be an attempt to save the country’s ailing shale gas industry as the US economy depends heavily on oil prices, or it can mean that some automakers aren’t ready for green regulations. Such manufacturers will opt for slowing down if given a choice,” SK Innovation said.

However, it remains to be seen whether the Trump administration’s relief for internal combustion engine vehicles will actually slow down the country’s transition to electric vehicles.

“Despite lenient standards in their home country, US automakers eventually have to meet more stringent EU standards if they want to sell their vehicles there. General Motors, Ford and Chrysler all have to up their game. Meeting European standards will be also good for promoting their cars,” an industry source said.

Meanwhile in Asia, electric vehicles are expected to get an extra boost, as China extended its subsidies program.

On April 1, the Chinese government said that it would extend its state subsidy program for electric vehicles for two years until the end of 2022 as part of an effort to breathe new demand into the coronavirus-hit domestic market for electric vehicles.

Though it’s unclear whether the extension will actually benefit Korean battery makers, as only four vehicles loaded with Korean batteries have been included on Chinese government’s whitelist for new energy vehicle subsidies, the Korean battery industry has shown confidence.

“Chinese EV battery makers such as CATL have been able to maintain their dominance by using cheaper batteries adequate for short-range EVs. However, Chinese companies lack technology for manufacturing batteries for third-generation EVs with driving distance more than 500 kilometers,” an industry source said.

“Korean EV battery makers will soon get their money back spent for research and development.”

Though Chinese lithium iron phosphate, or LFP, batteries are more than 50 percent cheaper than Korean NCM batteries that use lithium, nickel, cobalt and manganese as raw materials, LFP batteries have lower energy concentration levels and are bigger in size, which make them inadequate for longer-range electric vehicles and small sedans, according to industry sources.

“The fact that Chinese battery makers are still using LFP batteries despite their continued research on NCM batteries means that technology gap still exists between Chinese and Korean battery firms,” according to a Hyundai Motor Securities report.

As of February, LG Chem, Samsung SDI and SK Innovation together controlled 42 percent of the global electric vehicle battery market, according to market tracker SNE Research.

By Kim Byung-wook (kbw@heraldcorp.com)