Korean Automakers Need to Simultaneously Cooperate with the U.S. and China

The Korea Automotive Technology Institute said in its report on Aug. 18 that South Korean automakers should cooperate with the United States and China at the same time, via the Regional Comprehensive Economic Partnership (RCEP) in the latter case, as a response to the U.S. CHIPS and Science and Inflation Reduction Acts.

The Inflation Reduction Act is to invest US$375 billion for a 40 percent reduction in greenhouse gas by 2030. According to it, different tax reduction rates will be applied to EV makers depending on the ratio of production in North America and so on. Imported EVs are not subject at all to the tax deduction.

“The new law can be defined as EV battery supply chain internalization against China,” the institute said, adding, “This will lead to more competition in the future car industry and the South Korean government and South Korean automakers need to change their strategies to survive the competition.”

According to the institute, South Korea’s EV battery material import source diversification is likely to result in an increase in manufacturing cost, higher product prices and the government’s burden related to subsidies. The institute mentioned, as a solution, more cooperation for mineral procurement from Australia, Chile and Indonesia, which are main mineral suppliers in FTA with both the United States and South Korea.

“This cooperation may lead to a lower share in the Chinese car market and this risk should be prevented by more communication and cooperation with China in the framework of the RCEP,” it continued to say.