[Editorial] Chinese onslaught shakes auto industry; strategic support must be expedited

The series “Chinese automakers push into South Korea as domestic carmakers face troubles at home and abroad,” reported by Financial News in three installments, starkly illustrates the crisis facing South Korea’s auto industry. From January through September this year, Chinese-made vehicles accounted for 43.5% of newly registered passenger electric vehicles in South Korea. The number of BYD vehicles registered in the country surged to 20,137, up 578.7% from the same period last year. With Tesla vehicles made at the company’s Shanghai plant also joining the fray, imported electric vehicles outsold domestically made ones in September.
Alongside semiconductors, the auto industry is a key sector that has long supported South Korea’s economy. During semiconductor downturns, it alone led the export front and served as a pillar of growth. Now, this industry faces a crossroads amid China’s fierce challenge. The industry and the government must take a clear-eyed look at reality and actively seek a way forward.
China’s challenge is not limited to electric vehicles. Hydrogen vehicles, where South Korea has demonstrated technological superiority, are also in its sights. Hyundai Motor Company accounted for 71.9% of global hydrogen fuel-cell vehicle sales in the first half of this year, an overwhelming first place. Chinese hydrogen vehicle sales actually fell over the same period. But China’s moves are cause for concern. This past March, the Chinese government unveiled an ambitious plan to expand its hydrogen vehicle fleet to 100,000 by 2030. It also includes support of up to 1.6 billion yuan per region over four years for as many as five city clusters. This is a declaration of intent to achieve China’s rise in hydrogen vehicles, following its push in electric vehicles. It should not be taken lightly.
China’s rapid growth in the auto industry did not happen by chance. The Chinese authorities designated electric vehicles a national strategic industry early on and provided comprehensive support spanning research and development, production, purchases and charging infrastructure. The first shockwaves were felt in the European auto market. Three years ago, the CEO of Germany’s Volkswagen said, “The roof is on fire,” referring to the threat posed by Chinese electric vehicles. The European Union is pressing ahead with hardline measures, including tariffs of up to 45.3% on Chinese-made electric vehicles. The United States has also imposed an additional 100% tariff on Chinese-made electric vehicles, effectively blocking their access to its market.
South Korea cannot afford to sit on the sidelines. The basic tariff on passenger cars made in China is just 8%. As barriers rise in the United States and Europe, Chinese automakers are increasingly likely to target the South Korean market. The government must make its policies more effective in protecting the domestic production base. The criteria for electric vehicle purchase subsidies should also be revised. Contribution to domestic industry, safety and after-sales support should be assessed more rigorously so that subsidies help strengthen the domestic industrial base.
The government must devise more ambitious and sophisticated industrial support measures. Legislation to include electric vehicles among those eligible for domestic-production tax credits must also be expedited. It is hard to understand why the government excluded finished vehicles when it announced in August a support package modeled on the U.S. Inflation Reduction Act (IRA), the so-called “Korean IRA.” The amendment to the Restriction of Special Taxation Act recently introduced jointly by 19 lawmakers from both the ruling and opposition parties should be passed promptly, adding electric vehicles to the list of eligible vehicles so that domestic production and facility investment receive tangible benefits.
The hydrogen vehicle support system also needs a complete overhaul. According to Financial News, the government’s budget for hydrogen vehicle purchase subsidies next year will be 23% lower than this year’s and 38% lower than two years ago. Because hydrogen vehicle subsidies are funded jointly by the national and local governments, local governments’ failure to secure their share means the national funds cannot be properly used either. This structural problem must be fixed. Once the auto industry loses its manufacturing base, it is difficult to rebuild. Strategic government support is all the more essential at times like this. Businesses, too, must bring greater innovative strength to bear.