By In-Soo Nam In-Soo Nam The Wall Street Journal CANCEL...

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In-Soo Nam
In-Soo Nam
The Wall Street Journal
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Updated June 21, 2016 8:11 p.m. ET
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SEOUL—South Korea’s two biggest electric-vehicle battery makers— LG Chem Ltd. 051910 -0.59 % and Samsung SDI Co. SSDIY 0.00 % —have failed to get battery certifications from China, dealing a blow to their plans to expand capacity in the world’s largest auto market.
LG and Samsung, which control one-third of the world’s battery market for electric vehicles, said Tuesday their recent applications for certification were rejected.
The decision by China’s Ministry of Industry and Information Technology means that electric cars that use LG or Samsung batteries might be at risk of becoming ineligible for government subsidies. Chinese authorities recently said they are considering limiting the state subsidies presently offered for the purchase of electric cars to only those vehicles with certified batteries, starting as early as 2018.
Without state subsidies, which can account for as much as 40% of the price of an electric vehicle in China, battery suppliers will have trouble finding buyers, analysts said.
Thirty-one Chinese battery makers that also applied for certification in the same round have made it to the list.
LG and Samsung said they haven’t been notified of the reasons for their exclusion.
Both companies said they would resubmit their applications later this year.
“This is a big uncertainty for the Korean players in their EV battery business in China,” said a Seoul-based NH Investment and Securities analyst, Hwang Yoo-sik.
China has already suspended its once-generous consumer subsidies for electric buses using batteries like the ones Samsung, LG and other global competitors make—a combination of nickel, cobalt and manganese.
To increase their share of the rising electric-vehicle batteries market, LG and Samsung have been counting on demand from China, which last year made up one-third of the global market.
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The Chinese government aims to have five million electric cars and buses on the road by 2020 as part of efforts to reduce both air pollution and dependency on imported oil.
LG Chem and Samsung SDI each built a battery factory in the eastern city of Nanjing and in Xian, in central China, respectively, in October last year to start their full-fledged advancement into the Chinese electric-car market. The LG unit produces batteries that can run 50,000 pure electric vehicles each year, while the Samsung factory can power 40,000 such vehicles annually.
LG currently provides batteries to about 20 global makers of electric vehicles, including General Motors Co. GM 0.77 % , Ford Motor Co. F 0.66 % and Hyundai Motor Co. HYMLY 0.00 % In China, the company counts SAIC Corp., China’s biggest car company, and Chery Automobile Co. as its clients. Samsung’s Chinese customers include Zhengzhou Yutong Bus Co. and Beiqi Foton Motor Co.
SK Innovation Co. 096770 -0.68 % , the flagship unit of Korea’s third-largest conglomerate, SK Group, 034730 -1.41 % said in April it is also considering building an electric-vehicle battery plant in China, joining a global race to expand capacity there.
Nomura expects the Chinese electric-vehicle market to maintain an annual volume growth of nearly 50% on average until 2020.