Chile wins US tax-credit treatment for battery component made from lithium

Chile reached an agreement with the US to allow a key battery component to count toward tax credits under the US Inflation Reduction Act, boosting the appeal of investing in the South American nation. 

A Chilean delegation led by Economy Minister Nicolas Grau negotiated a deal whereby value-added lithium products made in Chile — such as cathodes — will qualify toward US domestic sourcing requirements for use in electric vehicles, his ministry said late Tuesday in response to questions.

White House spokespeople didn’t immediately comment.

Chile’s government has been looking to leverage the world’s biggest lithium reserves to move further down the value chain, offering preferential metal prices for companies to make lithium iron phosphate for cathodes. So far, two Chinese firms have agreed to build such plants in Chile. 

While raw materials produced by US trading allies clearly qualified for IRA treatment, there was less clarity on cathodes. Treating those components made in Chile as domestically sourced would make it more attractive for US and South Korean firms, for example, to invest in Chile. 

Despite a softening of the EV market that has sent prices of lithium tumbling, Chile has been drawing interest from Korean battery makers keen to develop processing plants there, according to Karla Flores, head of foreign investment promotion body InvestChile.

Unlike with Chinese-run projects, lithium processed by Korean firms in Chile and shipped to the US would qualify for IRA incentives. Cathode projects in Chile may also process lithium mined in Argentina, Flores said in an interview.