The Inflation Reduction Act (IRA) has not only benefited American firms such as First Solar but also presents an opportunity for emerging markets (EM) firms. The IRA aims to reduce US carbon emissions and promote the domestic production of clean energy technologies like electric vehicles, solar panels, and wind energy. This article explores how EM firms can leverage the IRA to their advantage in clean energy technologies.
EM Firms that Stand to Benefit
Although many firms that stand to benefit from the IRA are not US-listed, South Korean battery makers like LG Chem, LG Energy Solutions, and Samsung SDI are among the top beneficiaries. These firms are already some of the largest battery manufacturers globally, and with the IRA seeking to restrict sourcing battery parts from China, these companies are set to gain. Additionally, they are expanding their reach in the US, where South Korea is a free trade partner.
Electric vehicle makers are primarily US-based companies, and the battery makers are Korean, filling the gap in the market. China’s Contemporary Amperex Technology Co Ltd was the main competitor, but its operations are now restricted in the US, giving Korean companies an edge in battery manufacturing. The IRA benefits could boost the profitability of firms like LG Chem by billions of dollars per year as they ramp up production in the US.
Other firms that could benefit from the IRA include Italy’s utility Enel Group, a leader in solar energy, and Hanwha Solutions, a multinational with a solar energy business, Hanwha Qcells. However, the solar energy market is highly competitive, and it is uncertain who will emerge victorious.
Risks Ahead
Despite the potential benefits of the IRA, there are risks ahead. Investors are keenly watching how smoothly the IRA will roll out and how efficiently tax credits will be paid. They are also eyeing the possibility that Chinese firms could still benefit from the IRA, given their dominance in batteries and other technologies.
Passive investors may see a rise in China ETFs like iShares MSCI China ETF (MCHI), and Chinese stocks could rise by over 15% in the next 12 to 18 months. Investors are also monitoring the outcome of Ford’s announcement that it plans to build a new battery plant in Michigan, using CATL’s battery cell knowledge and services. Overall, the IRA presents a significant opportunity for EM firms to capitalise on the growing demand for clean energy technologies in the US.
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