China-South Korea vehicle collaboration could amplify ‘Asian opportunity’

(Liu Xiangya/GT)

In a recent report released by the Korea Automobile Manufacturers Association (KAMA), as cited by the Yonhap News Agency, a concerning trend was underscored within the South Korean auto sector. In 2024, South Korea's auto production experienced a year-on-year decrease of 2.7 percent, dropping to 4.13 million units and relegating South Korea to the seventh rank globally. This fall was primarily attributed to a decline in domestic demand, evidenced by a 6.5 percent year-on-year decrease in local sales.

Will South Korea's position in global auto production slip further in 2025? South Korea's central bank last month revised its GDP growth forecast for the year downward to 1.5 percent from the previously estimated 1.9 percent in November, signaling the likelihood of persistently weak domestic demand. Given these circumstances, it is crucial for the South Korean auto industry to not only safeguard its share of the global market but also to intensify its export efforts in response to dwindling domestic demand.

The South Korean auto industry is highly dependent on export markets, as sales to overseas markets constitute approximately 80 percent of all South Korean auto sales, according to media reports. Among these, the US stands as the largest export market for South Korean vehicles. According to the Korea Herald, South Korea's auto exports amounted to $70.78 billion last year, with shipments to the US accounting for 49.1 percent of the total.

Unfortunately, the US market is facing significant uncertainties. US President Donald Trump, as reported, said in February that he intended to impose tariffs of about 25 percent on auto imports, with more details coming out on April 2. If South Korean auto exporters encounter setbacks in the US market, it would pose significant challenges for the South Korean auto industry, compelling them to intensify efforts in other markets.

A sensible option would be to shift more focus toward the Asian market. China, holding the title of the world's largest market for new car sales, offers substantial opportunities for global automakers due to its sustained commitment to openness. Concurrently, the market in Southeast Asia exhibits significant growth potential, presenting an attractive avenue for expansion.

How to seize the "Asian opportunity" in the auto industry? There is a need to accelerate the transition to electric vehicles (EVs) to meet demand, as statistics indicate that the EV market in the Asian auto sector is growing rapidly.

Asia leads the world in EV sales: more than 60 percent of new EVs sold over the next five years will be in Asia, according to an article by HSBC last August. An EY report estimates the average compound annual growth rate of the EV market in the six biggest ASEAN economies at 16-39 percent between 2021 and 2035, with annual sales reaching $100 billion by 2035.

More importantly, the key to enhancing competitiveness lies in reducing costs, advancing technological innovation, and establishing cross-national industrial chains. In this regard, finding partners is an efficient way to achieve these goals.

Admittedly, there is competition in the auto sector between China and South Korea, but South Korean car manufacturers and Chinese companies have already begun collaborating in technology research and development and component supply. Continuing to deepen and expand this cooperation would be beneficial for the development of the South Korean auto industry and its transition to EVs.

Faced with pressure in both the domestic and international markets, South Korean mid-sized automotive companies are actively seeking collaboration with Chinese car manufacturers to promote the development of new models and contract manufacturing, South Korean media outlet AJP News Agency reported last November.

Notable examples include the partnership between KG Mobility, a mid-sized South Korean car manufacturer, and China's Chery Automobile to launch a new sport utility vehicle, as well as KG Mobility's partnership with China's BYD to develop hybrid power systems for new models, while also building a BYD battery assembly plant in South Korea, according to the report.

China holds multiple advantages in the EV sector, and through China-Korea cooperation, these advantages can be further amplified, benefiting both sides. By deepening cooperation with Chinese enterprises, South Korean car manufacturers can capitalize on China's strengths in the EV domain and industrial capacity to reduce costs and hasten their shift toward EVs. Such collaboration will create more opportunities for both Chinese and South Korean businesses, while also benefiting consumers in Asia.