In the first half of this year, Korea's auto industry went through a period of upheaval unlike any before. As Hyundai Motor, which drives the domestic market, showed unusual weakness, Tesla's surge began. With high oil prices caused by the Middle East war and China's BYD joining in, the number of consumers choosing electric vehicles started to rise sharply. The first-half period also marked the initial rollout of the "software-defined vehicle (SDV)," the starting point of future mobility. Here are nine defining scenes that shook the first half.
① Hyundai Motor wobbles at home… Tesla "sprints"
Hyundai Motor, which leads Korea's auto industry, suffered an unusual slump in the domestic market in the first half of this year. From January to June, Hyundai Motor's domestic sales totaled 316,713 vehicles, down 10.8% from a year earlier. In April, it ceded the No. 1 spot to Kia for the first time in 28 years, and monthly sales have fallen for six straight months since February.
Taking advantage of Hyundai Motor's stumble, Tesla is making big gains. Tesla's first-half sales came to 56,139 vehicles, up 192.2% from the same period a year earlier. Price cuts on key models in December last year and January this year helped. Tesla is running first, ahead of BMW and Mercedes-Benz.
② The end of the chasm in sight… one in four new cars is electric
With China's electric-vehicle maker BYD joining Tesla, domestic EV sales surged explosively. According to Kaizuyu Data Research Institute, new EV registrations in Korea in the first half reached 198,969, up 112.6% from a year earlier. EVs' share of all newly registered cars more than doubled, from 11.1% to 23.3%.
Beyond the price competition among brands, high oil prices caused by the Middle East war also spurred EV expansion. The industry sees the EV "chasm" (a temporary demand lull before mass adoption) as over, with the market entering a growth phase. Kia, for instance, posted a record first-half domestic EV sales tally of 72,078 units this year.
③ From Grandeur to iX3 and RAV4… new cars get smarter with AI
Major auto brands rolled out new versions of their bestsellers in the first half of this year. Hyundai Motor unveiled a facelifted model of the "people's sedan" Grandeur for the first time in three years and six months. BMW introduced the first mass-production car applying its next-generation vision, "Neue Klasse," the new midsize electric SUV "the new iX3," while Toyota unveiled the brand's flagship SUV "all-new RAV4" for the Korean market.
These new cars mark the starting point of a full-fledged transition of the domestic market to software-defined vehicles (SDVs). Like smartphones, SDVs continually evolve vehicle performance via over-the-air software updates even after delivery. With generative artificial intelligence (AI) onboard, drivers can also control the car easily by voice.
④ Up to 1.43 million won in effective hikes… special consumption tax cut ends
The cut to the automobile special consumption tax in effect since Jan. last year ended on June 30. As the tax rises from 3.5% to 5%, passenger car buyers will face up to 1.43 million won in additional tax burden. For example, for Hyundai Motor's "the new Grandeur," the lowest-priced Premium trim (gasoline) increased by 650,000 won to 42.5 million won from 41.85 million won.
The auto industry is concerned that the effective price increase could douse new car launches. But this is limited to internal combustion models. EVs can still receive up to 3 million won in special consumption tax relief. The policy runs through Dec.
⑤ The Humanoid Robot era nears… unions push back, shares jump
Hyundai Motor's Humanoid Robot "Atlas," unveiled in Jan. this year, is shaking up Korea's auto industry. Hyundai Motor plans to build a robot production base in the United States by 2028 and deploy the robots to manufacturing sites in stages. This has opened a new phase of labor-management conflict. Hyundai Motor's union publicly opposed deploying Atlas to production sites, saying, "Without a labor-management agreement, we cannot accept a single unit."
However, in terms of automakers' future value, expectations are growing that Humanoid Robots will change the production paradigm. Hyundai Motor's long-stagnant share price closed at 750,000 won on the 1st of last month, more than 150% higher than at the start of the year. Growth prospects are also rising for Hyundai Motor Group affiliates that supply robot-related components, such as Hyundai Mobis and HL Mando.
⑥ High exchange rates weigh on the auto industry
As the won's value keeps falling, the auto industry's woes are deepening. The average won-dollar rate in the first half was 1,484.56 won, the second highest for any first half after 1998 (1,493.08 won), the year of the foreign exchange crisis. Given the industry's high export share, a weaker won can boost profits in the short term but may lead to losses in the mid to long term, as production costs rise and demand could weaken.
Import brands, in particular, are exposed to high exchange rates without much protection. BMW is a prime example. In Korea, vehicles are imported from Europe and the United States, and the German headquarters bears gains or losses from exchange-rate swings. Following HQ's directive to defend against profitability deterioration from the high won-dollar rate, BMW Korea abruptly raised Korean prices from last month on key models, including the midsize luxury sedan 5 Series.
⑦ Mercedes-Benz rolls out direct sales, import brands on alert
Mercedes-Benz, the standard-bearer among import brands, introduced an integrated online-offline "direct sales system" in Apr. Breaking from dealer-commissioned sales, headquarters now controls pricing and inventory and offers uniform pricing nationwide. Among top import brands, Benz is the first to switch from a traditional dealer-network model to direct sales. Among mid-tier brands, Stellantis has adopted direct sales.
Industry watchers say that if Benz's approach takes hold, rivals like BMW and Audi are likely to restructure sales to reclaim pricing power at headquarters. However, a sales dip during the consumer adjustment period is seen as unavoidable. In fact, Benz's first-half sales fell 8.6% from a year earlier.
⑧ Honda exits, Zeekr lands… Japanese brands fade, Chinese brands rise
Japan's Honda announced in Apr. an abrupt exit from the Korean market after 23 years. It led import sales in 2008 with models such as the Accord and CR-V, but sold only 211 vehicles last year. Following Nissan and Infiniti in 2020, another Japanese brand is now shutting its Korean operations.
While Japanese brands continue to struggle in Korea, Chinese brands are rapidly expanding their presence. BYD sold 11,765 vehicles here in the first half, a surge of 807.9% from a year earlier. Another Chinese brand, Zeekr, began preorders for the midsize electric SUV "7X" on the 5th of last month, surpassing 1,000 reservations in just one month.
⑨ GM Korea pursues investment and dividends, KGM sets a sales record… mid-tier players stretch
Mid-tier corporations, long the sore spot of Korea's auto industry, began to stretch in the first half of this year. GM Korea, long dogged by rumors of an exit from the Korean market, shed its "crisis company" label in the first half. In Mar., GM Korea invested a total of $600 million (about 920 billion won) domestically and, for the first time in 11 years since 2014, moved to pay dividends totaling in the 4 trillion won range. KG Mobility, which once underwent court receivership during the old SsangYong Motor era, sold 12,000 vehicles in June, marking the highest monthly tally in about three years.