Chile Secures Favorable US Tax Treatment for Lithium Battery Components

Chile has reached an important agreement with the United States regarding lithium-based battery components. This deal could make Chile a more attractive location for processing lithium and manufacturing battery parts.

According to Chile’s Economy Ministry, the agreement allows certain lithium-based products made in Chile, such as cathodes, to count towards US domestic sourcing requirements for electric vehicle production. This qualification is significant for tax credits under the US Inflation Reduction Act.

Chile’s Economy Minister Nicolas Grau led the negotiations. The agreement encourages companies to process lithium and manufacture battery components in Chile rather than just exporting raw materials.

This development is part of Chile’s strategy to use better its vast lithium reserves, the largest in the world. The country wants to move beyond mining lithium to producing more valuable products. To support this goal, Chile is offering special pricing on lithium for companies willing to make cathode materials in the country.

The agreement could be particularly appealing to companies from countries like South Korea and the United States. Products from these firms made in Chile could now qualify for US tax incentives, unlike those from Chinese-owned operations.

Despite a recent slowdown in the electric vehicle market and falling lithium prices, Chile attracts international companies’ interest. Korean battery manufacturers, particularly, have shown interest in setting up processing plants in Chile.

Karla Flores, who leads InvestChile, the country’s foreign investment promotion agency, noted that Korean firms processing lithium in Chile for export to the US would be eligible for these incentives. She also mentioned the possibility of processing lithium from neighboring Argentina in Chilean facilities.

This agreement represents a significant step in Chile’s efforts to become a key player in the global battery supply chain, leveraging its natural resources to create higher-value products and attract international investment.