Also, Drop in Domestic Demand
Due to a slump in the global economy, auto demand is expected to decline in Korea and Korea’s car exports are expected to increase slightly as Korean car makers still have waiting orders. Therefore, Korea’s car production is expected to remain flat next year.
The Korea Automobile and Mobility Association (KAMA) said in its 2023 Automotive Industry Assessment and 2024 Forecast Report on Dec. 4 that Korean automakers will see a decline in domestic demand, a slight increase in exports, and flat production as consumer sentiment shrinks due to a global economic downturn, a drop in pent-up demand, and continued monetary tightening, especially in major countries in 2024.
The report forecasts that the domestic automobile market will sell 1.71 million units, down 1.7 percent year on year. This is because despite a modest economic recovery and the launch of major new EV models, the adverse base effects of improved semiconductor supply, lower household disposable income due to the economic recession, and a high interest rate may limit new demand.
As for exports, the Korean automobile industry expects to export 2.75 million units, up 1.9 percent year on year, due to the normalization of demand in major markets such as the United States and Europe and a recovery of consumer sentiment due to interest rate cuts in the second half of the year in developed markets. Korea’s car exports are expected to rise 3.9 percent to US$71.5 billion. Car production in Korea is forecast to rise 0.7 percent year on year to 4.17 million units, supported by solid global demand.
The report also forecasts sales of 4.14 million units, up 10.2 percent from a year earlier, as a clear recovery has continued in both domestic and export markets in 2023. This will mark the first time in five years that car production has returned to four million units since 2019, and the best performance since 2017. The report predicted that domestic demand will increase 3.3 percent year on year to 1.74 million units, while Korea’s car exports will also increase 17.4 percent year on year to 2.7 million units. This will be the best performance after 2016. Base effects have increased as bottlenecks caused by supply chain disruptions such as semiconductor shortages have disappeared and pent-up demand has been quickly resolved, the report explained.
In particular, EV exports were feared to shrink due to the passage of the U.S. Inflation Reduction Act (IRA) last year, but exports to the United States grew 77 percent year on year from January to October. Overall EV exports have been on the uptick, up 66.3 percent year on year. Car exports are also expected to reach a record high of US$69 billion, up 27.2 percent year on year, thanks to steady demand from major car markets such as North America and Europe and a spike in sales of eco-friendly cars and SUVs.
The report cited nationalistic industrial policies in the field of future vehicles around the world as the biggest risk that will face the Korean automotive industry in 2024. It explains that the strengthening of protectionist policies in favor of foreign countries, such as the U.S. IRA and French electric vehicle subsidies, will lead to an increase in overseas production by Korean automakers, which will inevitably lead to domestic production cuts.