Hyundai Motor Group and SK On have teamed up to beef up production of electric vehicle batteries in the US, a fast-growing market that offers hefty incentives to only locally produced electric vehicles and batteries.

The new partnership comes after the South Korean auto giant suffered subsidy cuts to its popular electric vehicles, including the Ioniq 5, in the all-important US market following the Biden administration’s Inflation Reduction Act that took effect in August.

The "US-first" act has put pressure on carmakers that operate EV manufacturing plants outside American soil, including Hyundai, which imports all its EVs from its home turf.

Based on the strategic alliance, Hyundai Motor said the plan is to supply SK On’s batteries to its EV factory that is scheduled to become operational from 2025.

Although the two companies did not release more details, industry sources here said the two companies plan to set up a joint venture in the US with an annual capacity of 20 gigawatt-hours, enough for about 300,000 electric vehicles.

Earlier a news report said the two companies would pour a combined 2.5 trillion won ($1.88 billion) into the new joint venture.

“Through this partnership on battery supply in North America, we expect to hit the ground running in targeting the EV market. With the two companies’ collaboration, we hope to secure a lead in the market based on stable supply,” said Kim Heung-soo, Hyundai Motor Group’s executive vice president.

According to sources, Hyundai Motor is also mulling joining hands with LG Energy Solution, the nation’s top EV battery maker and the No. 2 globally, to set up another joint venture battery plant in the US.

Last month, Hyundai Motor Group held a groundbreaking ceremony for its EV manufacturing plant in Georgia, dubbed Hyundai Motor Group Metaplant America. The company then said it plans to team up with a global battery maker to build a battery cell manufacturing plant near HMGMA.

Once HMGMA is up and running in the first half of 2025, it will produce 300,000 electric vehicles per year, according to the company.

The South Korean carmaker has laid out goals of selling 3.23 million EVs across the globe by 2030, looking to take up about 12 percent of the worldwide market. The company said it plans to manufacture 840,000 EVs in the US alone.

In order to meet Hyundai Motor Group’s targeted production in the US, the company would need to secure supply from at least three local battery plants with 20 gigawatt-hours of annual capacity.

“Having one source of battery supply is not stable. (EV makers) usually have two to three battery suppliers. Using various types of the battery allows for proactive countermeasures in case of problems,” Kim Pil-su, an automotive engineering professor at Daelim University, told The Korea Herald.

“In this case where the IRA emphasizes ‘America first’ policies, Hyundai Motor Group and Korean battery makers will have to construct battery plants in the US. So (Tuesday’s) announcement can be seen as a part of accelerating such efforts,” he added.

Meanwhile, Seoul has taken various measures to counter the Inflation Reduction Act, including the official submission of governmental opinions to the US Treasury Department earlier this month.

Major automobile manufacturer associations from South Korea, Japan, the European Union and the US have also submitted their opinions to Washington to demand the loosening of the Inflation Reduction Act’s tax subsidy requirements, according to the Korea Automobile Manufacturers Association.