Challenges Ahead: Korean Automobile Sector in the Middle of a Sea Change

The South Korean automobile industry is undergoing a sea change. The Hyundai Motor Group is increasing its overseas production and the industry’s growth is slowing down. Non-automakers such as Samsung, SK and LG are working on connected, autonomous and electric cars and car sharing.

According to the Ministry of Trade, Industry & Energy, the total output of the industry amounted to 4,650,700 cars in 2012 but fell to 4,521,000 in the next year. In 2016, it totaled 4,229,000, down 7.2% from a year ago. According to consulting firm AlixPartners, the Hyundai Motor Group increased its overseas production ratio from 44% to 51% from 2010 to 2012 and then to 59% last year.

Hyundai Motor Company’s plant in Cangzhou, which has an annual production capacity of 200,000 units, was put into operation last year along with Kia Motor’s plant in Mexico that is capable of producing 100,000 cars a year. The annual manufacturing capacity of each of the two plants is scheduled to be increased to 300,000. This year, Hyundai Motor Company’s fifth plant in China was put into operation in Chongqing. Its annual production capacity is scheduled to be increased from 30,000 to 300,000 in the near future. In the meantime, the group is making no investment for facility expansion at all in South Korea. Industry insiders say that this choice is inevitable in view of the high labor cost and frequent strikes in South Korea, ordinary wage-related risks in the country, etc.

AlixPartners recently said in its report that today’s automobile industry of South Korea is characterized by non-automakers’ investment in future car technology. “Multiple South Korean companies are approaching the future car market by different methods,” it commented, adding, “Samsung is turning itself into a car supplier providing advanced connectivity solutions while LG is aiming to become the largest electric vehicle supplier in the world and SK is working on a variety of future car services.”

Samsung Electronics began to accelerate its business in the market in late 2015 by establishing an automotive electronics division. In November last year, it acquired Harman International Industries for US$8 billion. Samsung is currently formulating a long-term plan regarding autonomous driving, artificial intelligence and so on while maintaining Harman’s existing business as it is for stable profits. Samsung Electro-Mechanics and Samsung SDI are collaborating with Samsung Electronics as auto parts suppliers, too.

LG Electronics turned V-ENS, an auto parts-designing subsidiary of LG CNS, into a division responsible for vehicle component development and manufacturing in July 2013. The division is currently expanding the scope of its business from in-vehicle infotainment to vehicle design, manufacturing facility supply, automotive electronics and electric vehicle components.

LG Electronics is planning to set up an electric vehicle component factory in Detroit by investing US$25 million. It also participated in the final bidding for ZKW, a vehicle lighting supplier headquartered in Austria. The company is supplying Mercedes Benz with cameras for use in advanced driver assistance systems while LG Chem and LG Innotek are producing electric vehicle batteries and camera modules, respectively.

In the SK Group, SK Innovation is expanding its facilities to boost its battery manufacturing capacity from 1.1 GWh to 3.9 GWh. The annual output is planned to be increased to 10 GWh by 2020 and the company is aiming to raise its global battery market share to at least 30% by 2025.

In January this year, SK Telecom decided to focus its investment on connected car and autonomous car technology. In the following month, it successfully demonstrated the fastest 5G network connection in the world in a car driving at a high speed with Ericsson and BMW Korea. SK Corporation, which is the holding company of the SK Group, acquired shares in Socar in 2015. More recently, SK Corporation established a joint venture with the largest car sharing company in South Korea to launch car sharing services in Malaysia. The holding company is also making an investment in Turo, the largest P2P car sharing company in the United States. 


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