“To compete with the overwhelmingly cost-effective Chinese cars, our corporations must also create products that are just as cost-effective. Otherwise, we will have no way to win.”
Jo Cheol, a senior researcher at the Korea Industrial Technology Association, said this in a recent interview. Jo is an expert in the automotive field and has served as the chief representative at the Korea Industrial Technology Association's Beijing office, making him a recognized expert on Chinese industry.
According to him, the start of electric vehicle development in China dates back about 20 years. The Chinese government, in the mid-2000s, supported the development of the automotive industry and shifted its support policies towards electric vehicles (EVs) with established battery supply chains, instead of internal combustion engine vehicles that heavily depended on imported energy. He explained that this led to a rapid growth of the industry with related corporations emerging in quick succession. “As investment funds concentrated in the industry and hundreds of companies began to compete, the prices and quality of products rapidly improved,” Jo noted. I asked Jo about the responses our government and corporations should take. The following is a question-and-answer session.
Chinese automotive brands are entering the South Korean market. What competitive advantages do Chinese cars have compared to South Korean products?
“The cost-effectiveness is overwhelming. When comparing the BYD's 'Ato3', which was officially introduced in the country on Jan. 16, with the Kia 'Niro' of similar specifications, the Ato3 has a longer range, and its body and display sizes are larger. I believe the Ato3 specifications are superior when including features such as voice control, automatic parking, and a digital key. It also received top ratings in European safety evaluations.
The selling price is similar to Japan's, at around 31.5 million to 33 million won. This makes it over 30% cheaper than the Niro. Domestic corporations could be significantly impacted.
Consumer aversion to Chinese products is also significant. Can cost-effectiveness offset this aversion?
“The consumption of cars does not form in a short time. It takes 5 to 10 years for perceptions of products to change. Therefore, the perception of Chinese brands may be hard to change in the short term. However, if we look specifically at BYD, it is already the world's largest electric vehicle company. Its sales volume (including plug-in hybrids based on all electric vehicles) is more than double that of the second-place Tesla. It is being sold not only in developing countries but also in developed nations like Europe and Japan. Chinese-made Teslas are already being sold domestically. Moreover, BYD has established far more dealer shops than Tesla, creating a large-scale sales system. After-sales service (AS) will also be possible through this dealer network, allowing for quite solid AS service.
Initial reactions may be lukewarm, but once a certain level of positive feedback starts, they will quickly expand their presence. If BYD succeeds, other Chinese brands will also flood in.
With the introduction of Hyundai's 'Caspir', the sale of budget electric cars has gained momentum. Among the three models BYD plans to bring in, the 'Dolphin' costs around 10 million won in China. Competition in the domestic low-cost electric car market will become fierce, as there are still many brands cheaper than BYD in China.
What is the government's role in this situation?
Currently, it is not high. Imposing tariffs on cars would mean engaging in full-scale disputes. This would likely render our economy difficult to sustain. There is a high possibility that problems will arise with imports and exports of other items. Some materials and parts are entirely reliant on imports from China. It is only possible to impose tariffs on Chinese cars in extreme scenarios that involve a full-blown trade dispute.
How should corporations respond?
“In any case, to compete with China, we must create products that are as cost-effective as theirs. If we do not, we will have no way to win. China has already achieved cost-effective innovation and is leading the industry. Looking at the history of the automotive industry, most market leaders have been companies that innovated their production methods. Ford, General Motors (GM), Toyota, and Volkswagen have all adopted low-cost, efficient production methods to lead the market. Hyundai's breakthrough overseas was also thanks to an innovation known as 'Hyundaism.'
The key is to establish systems that can produce the most at the lowest expense in any country. We need to determine where production is most efficient and find ways to produce more efficiently than other corporations.
What is the government's role?
“The government must also think deeply about the efficiency of the production system. It should incentivize large corporations to voluntarily enhance production efficiency by providing tax benefits for related investments and assist in resolving labor union issues.
Support for small and medium-sized enterprises that find it difficult to establish systems should go hand in hand. For large corporations to produce efficiently, small and medium-sized enterprises must be able to produce low-cost, high-quality parts. A well-established domestic supply chain will facilitate easier production of final products.
Research and development (R&D) or investments in future-oriented production systems must be viewed from a long-term perspective. Although it may seem like a waste in the short term, it should be pursued continuously.
What will be the next competition after electric vehicles?
“Autonomous driving systems, connected cars, and smart cars. Recently, as the commercialization of self-driving cars has been delayed, investments in the area have decreased compared to the past. This is because it is hard to maintain continuous investment when revenue is not forthcoming. However, in this area, now is actually the time to strengthen investments. China includes wireless update (OTA) capabilities even in low-cost cars. It's not just the complete vehicle manufacturers; the capabilities of software collaboration companies are crucial, and parts suppliers must also adapt accordingly.
In Japan, there were many hardware collaboration companies, but recently the number of software collaboration companies has significantly increased. We must actively nurture venture companies in this field. If China continues to lead even after electric vehicles, the automotive industry will be beyond saving. We must drive innovation.
Plus Point
“The Chinese market is tough, but we must survive” Hyundai Motor to invest trillions
Hyundai Motor recently announced that it would invest $1.1 billion (approximately 1.62 trillion won) in Beijing Hyundai, a joint venture with Beijing Automotive Industry Holding Co. (BAIC). This investment is seen as a strategy to boost sales in the Chinese market, where it is losing market share to companies like BYD. BAIC explained that the investment aims to maintain capital stability in the short term and, in the long term, to support the transition and development strategies toward electric vehicles and new technologies.
For complete vehicle manufacturers, China is both a target to keep in check and a target we should actively pursue and collaborate with. Despite the stagnation of electric vehicle demand, the market continues to expand rapidly as it possesses a number of competitive automotive corporations.
Jo Cheol noted, “Hyundai Motor is closely following the changing situation in China. Volkswagen has also reportedly established a large R&D center in Hebei Province, China. Volkswagen has mentioned that 'China is our fitness center' and 'we are not just selling products here, but also training,' indicating that companies are adjusting their strategies to survive in China.
He said, “Just because Chinese cars are strong and have a high local market share does not mean we should give up on the Chinese market. If we cannot endure in China, it will be difficult to survive in the global market. Even if we do not excel in the Chinese market, simply keeping up with it could give us an advantage in other markets.”