K-Battery Industry Targets U.S. ESS Market Amid EV Slump

South Korea's battery industry is grappling with two major headwinds: a decline in electric vehicle demand and mounting competition from Chinese manufacturers. However, a new opportunity is emerging in the U.S. energy storage system (ESS) market. As renewable energy expansion and AI data centers demand greater power management, the U.S. market is poised for explosive growth.

According to a report from the Korea Institute for Industrial Economics and Trade, the global ESS market is forecasted to grow at an average annual rate of 19%, reaching 1,449 gigawatt-hours by 2035. The U.S. segment alone is expected to surge nearly sixfold from 55 gigawatt-hours to 320 gigawatt-hours over the same period. The growth is fueled by the increasing need for uninterruptible power supply systems in AI data centers, which are projected to rise 47% each year.

Korean battery manufacturers have struggled, posting operating losses in Q1 this year due to declining competitiveness in nickel-cobalt-manganese batteries. In response, companies like LG Energy Solution and Samsung SDI are repurposing EV battery production lines for ESS manufacturing. LG Energy Solution aims to set up integrated ESS lines at five U.S. sites and secure over 50 gigawatt-hours of production capacity by year-end.

Meanwhile, Samsung SDI and SK On are converting plants in Indiana and Georgia to produce LFP batteries for ESS uses, accelerating mass production in the second half of the year. The U.S. government's efforts to lessen reliance on China through higher tariffs on Chinese ESS products present a significant advantage for Korean companies.

Starting in 2026, Chinese batteries will face an additional 25% tariff, compared to a 12.5% tariff on Korean products, providing Korean suppliers with a 28.4-percentage-point tariff edge. Additionally, tax incentives for U.S. production, with potential credits of up to $45 per kilowatt-hour, could help Korean manufacturers overcome their production cost disadvantage and potentially close the price gap with Chinese competitors.

However, to fully capitalize on these opportunities, Korean companies must improve their independence in the supply chain, particularly for key materials like cathode materials, graphite, and precursors, as U.S. restrictions on foreign entities tighten. Policy support to bolster the competitiveness of Korea's materials sector, including measures for direct refunds or third-party transfers of production tax credits, and increased R&D investment in LFP batteries and system-integration technologies, will be crucial for Korean battery makers to thrive in the U.S. market.