South Korean battery makers, who have poured considerable resources in the all-important US market, might lose ground over Ford’s new partnership deal with Chinese battery giant CATL, industry sources said Tuesday.

On Monday, Ford announced it plans to invest $3.5 billion to build an electric vehicle battery plant in Michigan using technology licensed from CATL, the world’s No. 1 EV battery maker.

The automaker will operate the production facility through its wholly owned subsidiary instead of setting up a joint venture with CATL. It is to bypass the US’ Inflation Reduction Act, which curbs tax benefits for EVs manufactured in or using components from China and other “foreign entity of concern,” sources said.

With the Chinese company’s lithium-iron-phosphate or LFP batteries technology, Ford will produce the low-cost battery cells. It had already laid out plans last year to install CATL’s LFP batteries in the Mustang Mach-E electric sport utility vehicle and F-150 Lightning pickups.

Industry insiders say SK On and LG Energy Solution, key Korean partners for Ford, are likely to lose price competitiveness to the Chinese rival. The two companies mostly produce NCM batteries composed of lithium, nickel, cobalt and manganese, which cost more than LFP batteries.

“NCM batteries are almost twice as expensive than LFP batteries. CATL’s price advantage is likely to appeal to broader consumer base seeking to buy low-cost and affordable EVs,” said an industry source on condition of anonymity.

Lee Ho-geun, a car engineering professor at Daeduk University, also said the latest tie-up between Ford and CATL could pose a direct threat to Korean battery makers benefiting from the “protectionist” IRA legislation.

“The US government might come up with a quota system to prevent Chinese firms from getting too much incentives in March. Still, it seems unavoidable that their cheaper pricing could offset incentives Korean batteries are expected to enjoy in the US,” Lee said.

In the US, SK On is building battery plants in Kentucky and Tennessee through BlueOval SK, a joint venture with Ford. LG Energy Solution is also in talks with the auto giant to build a production facility in Turkey.

“(Ford’s alliance with CATL) will have little impact on the company’s US operations since it has already formed a contract with Ford on production volume,” an SK On official said.

Another industry source also added it might not be a head-on competition between SK On and CATL, saying “they are supplying batteries for different car segments.”

CATL’s bigger presence in the US comes as Chinese battery makers are slowly but surely gobbling up markets shares from their Korean rivals.

Last year, LG Energy Solution remained No. 1 in global sales, excluding China, according to market tracker SNE Research. But its market share dropped to 29.7 percent from 35.1 percent over the past year, with Chinese companies, led by CATL, expanding their combined market shares.

“In the long run, it will be a competition between high-cost, high-quality Korean batteries and low-cost Chinese batteries with not-so-great performance,” the source said. “Still, Korean companies could have the competitive edge in terms of battery quality and safety.”