Emerging US Eco-Friendly Vehicle Market: "Urgent Need to Establish Cooperation Systems and Restructure Supply Chains"

Biden Administration's Green Vehicle Drive Accelerates... 'US-Centered Supply Chain Restructuring' as Both Risk and Opportunity

Imported cars are waiting to be shipped at Pyeongtaek Port, as seen from a Seoul Metropolitan Police Agency helicopter on the 10th, one day before the Lunar New Year holiday./Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Yu Je-hoon] As the U.S. eco-friendly automobile market rapidly rises, the Biden administration's strategy to reorganize the U.S.-centered materials and parts supply chain is becoming both an opportunity and a threat to the Korean automobile industry, prompting analysis that the Korean government and companies must adopt tailored strategies.

According to the report titled "To Seize Opportunities in the U.S. Eco-friendly Mobility Market," published on the 8th by the Korea Automotive Technology Institute, the sales volume of eco-friendly vehicles (HEV, PHEV, BEV) in the U.S. reached 790,000 units last year, ranking third globally after China (1.65 million units) and Japan (930,000 units). The production share of eco-friendly vehicles in the U.S. is also predicted to grow from 3.7% in 2018 to 13.7% by 2023.

Since U.S. President Joe Biden, who declared "Net Zero (carbon neutrality)," took office, this eco-friendly trend has been further strengthened. President Biden pledged during the presidential election to rejoin the Paris Agreement, which former President Donald Trump had withdrawn from, and to add 500,000 electric vehicle charging stations in the U.S. by 2030 to achieve carbon neutrality, as well as convert 3 million government vehicles to electric vehicles. Additionally, through the 2019 Hydrogen Economy Roadmap, the U.S. plans to deploy a cumulative 1.2 million hydrogen vehicles and build 4,300 hydrogen charging stations by 2030.

Korean companies are also reviewing multifaceted strategies in response to the Biden administration's eco-friendly drive. Automakers are accelerating electrification. Hyundai Motor plans to expand its new eco-friendly vehicle lineup (HEV, PHEV) for the Tucson and Santa Fe models launched in the U.S., and will release the Ioniq 5, the first to apply the dedicated electric vehicle platform E-GMP, in the second half of the year.

Parts manufacturers producing batteries and semiconductors are expanding factories in the U.S. LG Energy Solution is constructing a battery plant in Ohio in partnership with General Motors (GM), and SK Innovation has decided to build a second plant in Georgia. Samsung Electronics is also considering expanding its foundry plant in the U.S. with an investment of 20 trillion won due to the surge in semiconductor demand for artificial intelligence (AI) and autonomous vehicles.

Meanwhile, the Biden administration's strategy to reorganize the supply chain centered on the U.S. could be both an opportunity and a risk factor for the Korean automobile industry, according to the institute's analysis. President Biden signed an executive order to review supply chains to reduce dependence on China for key materials and parts such as semiconductors, electric vehicle batteries, and rare earth elements, and to strengthen ties with allied countries.

Since dependence on parts produced in China, where manufacturing costs are low, must be reduced, discovering suppliers considering quality, cost, and supply is a risk factor. However, for Korean companies, there is an opportunity to gain a reflective benefit by increasing their share in the U.S. market.

Furthermore, the U.S. is promoting a strong reshoring policy related to the automobile industry. To revitalize domestic manufacturing, the U.S. strengthened the rules of origin for automobile manufacturing, increasing the procurement ratio within the North American region to receive tariff exemptions and encouraging domestic investment through the United States-Mexico-Canada Agreement (USMCA), which took effect in July last year. Additionally, the Biden administration offers a 10% tax benefit to companies reshoring to the U.S.

The institute advises that tailored strategies are necessary to settle in the U.S. eco-friendly mobility market, where opportunities and risks coexist. First, the government should establish a cooperative platform involving various stakeholders and continue cooperation in policy, technology, and research fields through multiple bilateral and multilateral cooperation frameworks.

For example, Japan has signed bilateral agreements with developing countries through the Joint Crediting Mechanism (JCM) and supports technology development and commercialization. It is also inducing inclusion in the U.S.-centered regional supply chain by joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

The institute added that Korean companies should also review the global value chain to target the U.S. market and advance the domestic automobile industry. The institute stated, "Domestic automakers need to build supply chains and production strategies considering production sites for U.S. sales, and provide support programs for small and medium parts companies that have entered jointly to diversify overseas customers."