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Should South Korea Join the Transition to All Electric Vehicles?


By Troy Stangarone

The global automobile industry is on the verge of significant changes. Google, Uber, and traditional automobile manufacturers are pushing further into the development of autonomous vehicles and seeking to disrupt how vehicles are used by consumers. While the development of autonomous vehicles may change the way automobiles are used, they are not the only change that is likely to reshape the global automobile industry. Earlier this summer France and the United Kingdom announced that they will be phasing out combustion engines as part of a transition to only allow the sale of electric vehicles by 2040. China, the world’s largest automobile market, followed suit and announced that it was also planning to transition to electric vehicles in the future. While the moves by France and the United Kingdom are significant, the move by China could change the way South Korean policy makers need to think about automobile production and related issues.

In 2016, more than 23 million vehicles were sold in China, which is one of the top markets for Hyundai and Kia, accounting for more than a fifth of their global sales. If China follows through on its pledge to transition to electric vehicles, it will have a significant impact on the types of vehicles that Hyundai and Kia produce.

To date, the spread of electric vehicles has been held back by two issues. The first is what is commonly known as range anxiety. While the initial Tesla models average around 300 miles per charge, most electric vehicles on the market only get around a third of that distance on a single battery charge. With a limited infrastructure to charge electric vehicles consumers have been reluctant to purchase electric vehicles on a mass scale since they are limited in their usage compared to used gas powered vehicles.

The second issue is the ability of manufacturers to scale up demand and production to drive down costs so vehicles are price competitive with traditional combustion engines. Manufactures have tried to address this issue by introducing hybrid vehicles, increasing demand for the lithium ion batteries that power electric vehicles. This also addresses the range anxiety issue, and, in the case of Tesla, focuses on luxury vehicles where consumers are less price sensitive. At the same time, governments have offered subsidies to consumers to make electric vehicles price competitive.

The decisions by France, the UK, and especially China are already having an impact on the production decisions of major automotive producers. Under new regulations in China, automakers will be required to sell more vehicles that run on alternative fuels if they want to continue selling traditional vehicles. In response, global producers are looking to increase the production of electric vehicles in China, while in some cases shifting research and development to the Chinese market. GM and Ford have announced that they will be introducing 20 and 13 new electric vehicle lines over the next five years, respectively.

By mandating that all vehicles in the United Kingdom and France have electric engines, France, the UK, and eventually China are essentially working to address the scale issue by providing a guaranteed market for electric vehicles and signal to the private sector that it should continue to invest in the electric vehicle market. As the industry shifts toward electric vehicles, South Korea will need to consider the current state of the domestic market for electric vehicles, how market shifts abroad will affect the long-term competitiveness of Hyundai and Kia, the impact of the shift to electric vehicles on other South Korean industries, and how a shift to the mass usage of electric vehicles would impact the energy market in South Korea.

The Role of Electric Vehicles in the South Korean Market

The market for electric vehicles in South Korea is still embryonic. In 2016, only 5,914 electric vehicles were sold in South Korea, a market of 1.54 million vehicles. In contrast, 352,000 electric vehicles were sold in China last year and 159,139 were sold in the United States.

As other markets shift, the development of electric vehicles and their adoption in the South Korean market will increasingly become a competitiveness issues for the South Korean auto industry. While Hyundai and Kia have begun producing electric vehicles, they trail U.S. producers such as Tesla and GM, as well as Chinese firms which have dominated the market in China, where Tesla is the only foreign company to have had success.

While South Korea is behind the curve in the area of electric vehicles, the government has taken steps to promote the adoption of the technology through the development of the necessary recharging infrastructure and by providing purchase subsidies. The goal is to have ecofriendly vehicles account for 30 percent of sales in three years, up from 3 percent today. The question is will those steps be enough to jumpstart the industry in South Korea or should South Korea institute a mandate for electric vehicles similar to France and the United Kingdom?

The Battery Industry and Electric Vehicles

The potential future of South Korean auto industry isn’t the only other industry at stake in the shift to electric vehicles. In 20 years, the shift to electric vehicles is expected to create a $240 billion market for batteries. At the moment, LG Chem and Samsung SDI, are two of the leaders in battery market for electric vehicles, with LG Chem supplying the batteries for the Chevy Volt hybrid and Chevy Bolt electric vehicle. However, China hopes to claim this market for its own domestic producers, much as it has done in emerging energy industries such as wind and solar power, by driving down prices and restricting foreign competition. It has also refrained from certifying Samsung SDI and LG Chem vehicle batteries in China, limiting their ability to grow in the world’s largest electric vehicle market.

The Future of Energy Production in South Korea

The shift to electric vehicles is not only about production and the potential export industries it would affect, but also about the supply of power to charge a growing fleet of electric vehicles. Shortly after assuming office, President Moon Jae-in announced that he planned on phasing out coal and nuclear power plants and replacing them with new LNG plants and renewable energy. A commission established to study the issue has recommended pushing forward with plants already under construction, but has also suggested scaling back nuclear power in the long-term.

While the plan was put forward to address public concerns over air pollution, it could impact South Korea’s ability to transition to electric vehicles. While burning LNG is cleaner than coal, there are already concerns that the shift away from coal and nuclear power could lead to power shortages. A significant shift to electric vehicles would require an increase in electrical production and a movement away from nuclear power could reduce any of the benefits of zero emissions from electric vehicles or constrain their growth if South Korea faces power constraints in the future.

The actions by France, the UK, and China have the potential to reshape the global automobile industry. For a country such as South Korea, this has significant implications for the future of automobile production, but also larger sections of the South Korean economy. As a result, South Korean policy makers will need to consider how these shifts will impact not just the domestic auto industry, but how the shift will impact other industrial sectors, along with power generation in South Korea. The policy decisions made now could help to ensure that South Korea maintains a competitive automobile industry and develops the new technologies of the future.

Troy Stangarone is the Senior Director for Congressional Affairs at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from the National Renewable Energy Lab’s photostream on flickr Creative Commons.

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The Peninsula blog is a project of the Korea Economic Institute. It is designed to provide a wide ranging forum for discussion of the foreign policy, economic, and social issues that impact the Korean peninsula. The views expressed on The Peninsula are those of the authors alone, and should not be taken to represent the views of either the editors or the Korea Economic Institute. For questions, comments, or to submit a post to The Peninsula, please contact us at ts@keia.org.