Overseas Expansion Strategies for Korean Auto Parts Firms (US & Europe)
Strategies and Approaches in US/EU Markets: Korean auto parts companies have pursued multiple strategies to enter the United States and European markets. A key approach is leveraging Free Trade Agreements (FTAs) to reduce tariffs and improve price competitiveness. For example, the Korea-EU FTA eliminated tariffs of 2.7–4.5% on auto parts, helping South Korea’s parts market share in the EU rise from 6.4% in 2009 to about 8.5% in 2010 and an expected 10% in 2011
. Korean suppliers also emphasize quality and technology to meet stringent requirements of global automakers, as European buyers have been attracted by the improving quality of Korean parts
. Many firms recognize they must either offer advanced technical solutions or competitive costs to win contracts in these mature markets. If a product is not differentiated by new technology, it often has to compete on price against rivals from China or India – some of which remain cheaper even after tariffs
. This has driven Korean companies to invest in product innovation, cost reduction, and compliance with international standards to fit into global supply chains.
Local Presence and Partnerships: Establishing a local presence has proven to be an effective strategy. Companies often start by conducting in-depth research on target customers and competitors, then engage local sales agents or networks to secure contracts
. Utilizing organizations like KOTRA for market entry support or hiring local representatives helps Korean SMEs handle complex documentation and real-time communications with clients
. Over time, successful firms progress to localization by setting up overseas warehouses, technical centers, or manufacturing facilities. Mergers and acquisitions (M&A) are another route to quickly gain a foothold. For instance, Korean parts makers have acquired existing factories in Europe to save time and align with client needs. In one case, Shinheung SEC (a battery component supplier) acquired a plant in Hungary to supply its customer Samsung SDI’s EV battery factory, a move completed in just three months with KOTRA’s assistance
. This not only followed a Korean client into the market but also took advantage of Hungary’s 25–50% local investment tax credits and grants, secured with KOTRA’s help
. Such partnerships and local investments enable Korean firms to meet “Made in region” requirements of automakers and to respond faster to orders, which is crucial under rules like the USMCA trade agreement that raised North American content requirements to 75% (from 62.5% under NAFTA)
. Overall, a combination of FTA benefits, quality improvement, dedicated export teams, and on-the-ground presence defines the current market entry playbook for Korean suppliers.
Success and Failure Case Studies: There have been notable successes where Korean auto part companies secured major global clients and grew internationally. For example, Hyundai Mobis – once focused on domestic assembly kits – transformed into a top-tier module supplier and recently won a large contract to supply electric vehicle battery systems to Volkswagen in Europe
. This demonstrates a successful transition to new technology and an effective global outreach. Similarly, Hanon Systems leveraged its niche in EV thermal management to increase sales by 10% and climb the ranks of global suppliers
. Success cases often involve having a dedicated overseas business unit and long-term relationship-building with global automakers. In contrast, some smaller Korean parts firms have faced failures or setbacks abroad due to lack of preparedness. Common failure points include insufficient local market knowledge, no permanent presence, and underestimating the need for dedicated resources. Companies that rushed into exports without assigning full-time staff for overseas business often struggled with handling complex requirements and client communications
. One industry expert noted that for a small supplier, not having at least one dedicated export manager virtually guarantees failure, whereas all observed success cases had such dedicated personnel
. Another pitfall has been competing purely on price in commodity segments – some firms found that even with modest tariffs on Chinese competitors, they could not match the low prices, leading to lost bids
. A lesson from these cases is that adequate preparation, local networking, and focusing on a competitive niche (either cost or technology) are vital to succeed overseas.
US/EU Policy and Procurement Trends: Evolving automotive policies in the US and Europe are reshaping procurement trends in ways that impact Korean part suppliers. In the U.S., recent policies emphasize local manufacturing and supply chain security. The US-Mexico-Canada Agreement now requires higher regional content (75%) for vehicles to avoid tariffs
, pressuring OEMs to source more parts within North America. This has prompted Korean firms to consider building plants in the U.S. or Mexico to remain part of North American supply chains. Additionally, the U.S. government has threatened tariffs up to 25% on imported autos and parts (under national security grounds), a move initially pushed by the Trump administration
. While not enacted broadly, the mere possibility creates uncertainty for Korean exporters who fear that such tariffs would raise their costs and erode competitiveness
. On the other hand, geopolitical shifts are creating some opportunities: rising U.S.–China tensions have led Washington to impose hefty duties (reportedly a 60% tariff) on Chinese auto parts, which could prompt American buyers to seek alternatives
. Korean suppliers stand to benefit as substitute suppliers if Chinese parts are priced out by tariffs
. In Europe, the dominant trend is the push toward electric vehicles and carbon neutrality. EU regulations are phasing in stricter CO₂ emission standards and plan to ban new gasoline/diesel car sales by 2035, forcing automakers to switch to EVs. This shift is changing procurement needs – demand is rising for electronics, batteries, and motors, while traditional engine and transmission parts face decline. European automakers and parts makers are also under pressure from a surge of Chinese EV imports. Europe’s EV imports from China skyrocketed to an annualized 430,000 vehicles by mid-2023, up from virtually negligible levels a few years before
. This influx has led the EU to launch anti-subsidy investigations and consider tariffs on Chinese EVs
. European OEMs, in turn, are looking to diversify their supply base and hedge against dependencies on any single country. They have shown interest in Korean parts as a way to diversify away from China and even Japan
. Another procurement trend is the focus on supply chain resilience – after COVID-19 disruptions and the war in Ukraine, both US and European auto industries have started valuing suppliers that can reliably deliver and are geographically diversified. Korean firms, with their reputation for quality and the backing of Korea’s reliable production infrastructure, are positioned to capitalize if they can establish local support centers and meet just-in-time delivery models in those markets.
Enhancing Global Competitiveness: To secure a stronger foothold globally, Korean auto parts companies must continue bolstering their competitive advantages. First, investing in innovation is crucial – developing unique technologies (e.g. EV-specific components, autonomous driving sensors, advanced materials) can set them apart from lower-cost competitors. Without proprietary tech or patents, firms risk head-to-head price wars with Chinese or Indian suppliers, which is unsustainable given those countries’ lower labor costs
. Second, Korean suppliers should establish deeper local integration in target markets. This includes setting up sales offices or technical support teams in the US/EU, and ultimately local manufacturing for key clients. A phased approach of “beachhead -> local office -> local plant” has been recommended for success
. Third, companies need to cultivate strategic partnerships: aligning with global automakers’ overseas projects or partnering with Western Tier-1 suppliers can open doors. For example, following Korean EV battery makers abroad (as in the Hungary case) or co-developing systems with global firms can embed Korean parts into new EV platforms. Lastly, maintaining a high level of quality, on-time delivery, and compliance will solidify Korea’s image as a reliable source. European surveys already indicate positive perception of Korean parts’ quality, which can be a selling point to win more contracts
. By combining cost competitiveness, technology differentiation, and responsive customer service, Korean firms can greatly enhance their global position. As a baseline, experts suggest every aspiring exporter ensure:
- Dedicated export management: Assigning experienced staff to handle overseas clients and compliance is a must, as it significantly raises success odds .
- Market research & networking: Proactively studying target OEMs and using local networks (or KOTRA) to identify opportunities gives an edge .
- Localization: Plan for local production or assembly in major markets once sales grow, to meet regional content rules and reduce logistics costs .
By implementing these steps, Korean auto parts companies can better navigate foreign markets and secure long-term competitiveness.
Government Support Policies for Overseas Expansion
Financial Support and Tax Incentives: The Korean government recognizes that helping auto parts manufacturers expand abroad and upgrade technology is critical for the industry’s survival. As such, a variety of financial supports and tax incentives are in place. Policy banks and agencies provide low-interest loans, credit guarantees, and insurance to SMEs for export activities or overseas investments. In fact, the government announced it would provide policy financing of 9.7 trillion won (approximately $7–8 billion) in 2024 specifically to bolster the future vehicle sector
. This funding, delivered through institutions like Korea Eximbank and Korea Development Bank, helps firms finance foreign mergers, build overseas plants, or simply improve their liquidity for international operations. On the tax side, new legislation such as the Act on Future Automotive Parts Industry (effective July 2024) introduces tax incentives to encourage transition and R&D
. Companies investing in R&D for electric, autonomous, or hydrogen vehicle parts can receive tax credits on R&D expenditures. There are also tax breaks for facility investments that support future vehicles, and potential reductions in duties for importing advanced equipment. To offset the cost of entering foreign markets, the government and local authorities sometimes offer subsidies or cash grants – for example, matching funds for setting up a foreign subsidiary or participating in international trade fairs. These measures reduce the financial risk for parts makers as they globalize.
R&D and Innovation Programs: A core pillar of support is boosting R&D to increase global competitiveness of Korean auto parts. The government has substantially increased funding for automotive R&D programs focusing on next-generation vehicles. In 2024 alone, the budget allocated 392.5 billion won (over $300 million) specifically for process innovation and R&D in future car technologies
. This money is channeled into projects for developing EV components, autonomous driving sensors, battery materials, and other high-tech parts. Companies can apply for grants or join consortium projects led by institutes (like the Korea Automotive Technology Institute) to develop cutting-edge products. Additionally, Korea is fostering specialized innovation clusters: for instance, Gwangju’s BitGreen National Industrial Complex was designated as a hub for autonomous and EV parts, with regulatory easements and infrastructure support
. Within such clusters, companies get access to shared testing facilities, pilot production lines, and collaboration with universities to expedite product development. The aim is to ensure SMEs have the technological capability to meet changing global demand. By securing core technologies domestically and achieving international certifications, Korean suppliers can more easily win overseas orders. Government R&D support has already yielded fruit in some areas – for example, it nurtured domestic battery and semiconductor firms (like SK On, LG, etc.) that are now world-class, and it’s extending similar support to traditional part makers for their transformation
.
Role of Government Agencies (KOTRA, MOTIE, etc.) and Outcomes: Several agencies spearhead the practical support for overseas expansion. KOTRA (Korea Trade-Investment Promotion Agency) plays a frontline role by connecting Korean suppliers with foreign buyers. KOTRA organizes international trade shows and matchmaking events where parts companies can showcase products to overseas OEMs and Tier-1 suppliers. It also runs the “Korean Pavilion” at major auto parts exhibitions (e.g. in Detroit, Frankfurt), giving SMEs exposure under a national banner. Furthermore, through KOTRA’s overseas offices (over 10 in North America alone
), companies can utilize the “export incubator” program where a KOTRA office acts as a temporary overseas branch to represent the SME, conduct market research, and arrange meetings. This reduces the initial cost of maintaining a foreign office. The Ministry of Trade, Industry and Energy (MOTIE) has convened public-private strategy meetings (roundtables) to address industry needs. In May 2023, MOTIE and major automakers agreed on a comprehensive support package of 14.3 trillion won (~$11 billion) to strengthen the auto parts sector
. This includes funding from both government and OEMs (Hyundai/Kia) to ensure suppliers can ramp up for EVs, as well as programs to secure core technologies, foster talent, and enact special legislation for the industry
. The outcomes of such policies are beginning to show. Korea’s auto parts exports have been on an upward trajectory, reaching a record high in recent years. In 2024, parts exports hit $22.5 billion, with the U.S. and EU being the top markets
. The government credits these gains in part to its support measures and the strong performance of EV-related suppliers
. Domestic suppliers are now involved in global EV programs (for instance, supplying parts for Tesla and Volkswagen EV models), indicating improved global integration. Another outcome is that more Korean firms are establishing foreign operations; with help from government-backed feasibility studies and financing, dozens of suppliers have set up plants or joint ventures in North America and Europe over the last decade. However, challenges remain – smaller companies still report difficulties in utilizing some programs due to complex application processes, and not all funding trickles down effectively. Overall, the partnership of government and industry has so far prevented large-scale collapse (seen in some other countries) and kept Korean firms in the race during the transition.
Policy Recommendations for Stronger Global Competitiveness: While existing policies have provided a foundation, additional measures could further bolster the global competitiveness of Korea’s auto parts sector. One recommendation is to expand targeted financial aid for SME suppliers transitioning to EV parts. Given that over half of parts makers cite lack of capital as the biggest obstacle to innovation
, the government could introduce dedicated “transition loans” or increase the cap on R&D tax credits to ease this burden. Simplifying the application and approval process for these funds would ensure even small family-run suppliers can benefit. Another suggestion is to enhance workforce development – the industry needs more electronics and software engineers. The government plans to train 30,000 specialists in future car tech by 2030
, and this should be accelerated by partnering with universities to create automotive software programs and offering scholarships for students in relevant fields. Additionally, policies should foster collaboration between large automakers and smaller suppliers. Hyundai and Kia, as beneficiaries of a strong supplier base, could be given incentives (or mandates) to assist their suppliers in upgrading, through technical training or guaranteed purchase agreements for new-tech parts. There is also a call for “matchmaking” support to diversify markets: beyond the U.S. and EU, government can help suppliers enter emerging markets like the Middle East, India, or ASEAN where new opportunities (like building EV infrastructure or CKD assembly plants) are growing
. Encouraging a broader export market spread will reduce reliance on a few regions. Lastly, stakeholders emphasize the need for a just transition framework – many workers and small businesses risk being left behind in the EV shift. A coordinated policy could include reskilling programs for workers from engine-parts companies and perhaps a temporary financial safety net for firms that are strategically important but struggling. The Korean government has indeed started drafting special legislation and designated transition support as a priority
. It should ensure this is implemented in a “tailored” (맞춤형) manner, as one size will not fit all; each supplier’s situation should be reviewed to provide customized assistance
. By continuing to refine these policies and addressing on-the-ground hurdles, the government can strengthen the resilience of Korea’s auto parts industry on the global stage.
Technological Transition in the EV/Autonomous Era
Shifting from ICE Components to EV and Autonomous Vehicle Parts: The rapid rise of electric vehicles (EVs) and autonomous driving technology is transforming the automotive supply chain. Traditional Korean auto parts companies that primarily made internal combustion engine (ICE) components are under pressure to pivot or risk obsolescence. This transition is challenging because EVs fundamentally require fewer and different parts than ICE cars. An electric car has roughly 19,000 components versus about 30,000 for a gasoline car
. Entire categories of parts – fuel injectors, radiators, exhaust systems, engine blocks, transmissions – will see drastically reduced demand or disappear. In Korea, a 2022 survey of 350 parts firms starkly showed the slow pace of change: over 56% of suppliers were still producing ICE-only parts (e.g. engines, transmissions) and only 2.6% were making EV or hydrogen-specific parts
. More than half of the companies derived >90% of their revenue from ICE vehicle projects
. This heavy dependence on legacy components is a major vulnerability. The same survey found only 38% of parts firms had even begun any form of EV transition, and among those that did, many were struggling financially
. The reasons include the high cost of retooling factories, lack of specialized engineers, and uncertain return on investment. Companies often need to invest in new equipment (for battery or motor part production) and acquire new design skills (like software or electronics), which is not easy for small and mid-sized suppliers with limited capital. Despite these headwinds, there is a growing recognition that moving into EV, autonomous, and battery-related components is not optional but necessary. Some companies have started to reallocate resources toward “future car” parts, often with government incentives or at the urging of their primary customers (the automakers). The Korean government’s push to multiply domestic EV production fivefold by 2030
has sent a clear signal to the supply base: a corresponding transformation in the parts industry must take place on an aggressive timeline.
Case Studies of Technology Development and Export Success: Several Korean auto parts suppliers have successfully reinvented themselves for the new era, providing blueprints for others. A prime example is Hyundai Mobis, originally an ICE-focused module assembler for Hyundai Motor. Over the past decade, Mobis invested heavily in R&D for electric and intelligent vehicle components (like battery systems, electric powertrains, and sensors). The result: Mobis not only developed these technologies but also won a large-scale order from Volkswagen in 2023 to supply Battery System Assemblies for VW’s next-generation EVs
. To fulfill this, Mobis is building a new factory in Spain, marking a successful pivot to EV parts and a major export contract with a top global automaker. Another case is Mando Corp., known traditionally for brakes and steering systems. Anticipating the shift, Mando directed its R&D to electric power steering, advanced driver-assistance systems (ADAS), and autonomous driving sensors (radar, LiDAR). It has since secured deals to supply ADAS components to overseas OEMs, leveraging its new tech portfolio. Hanon Systems (a Korean supplier of thermal management systems) transformed its product line from conventional HVAC for ICE cars to heat pump and cooling systems optimized for EVs. This led to new contracts for EV thermal systems in both Europe and the US, boosting its global sales by 10%
. Moreover, entirely new players emerged: battery manufacturers like SK On and LG Energy Solution – while not traditional “auto parts” companies – became critical suppliers as EVs gained traction, and even some established parts firms have aligned with them (e.g., companies making battery casings, management systems, etc.). On the autonomous vehicle (AV) front, firms such as HL Klemove (a subsidiary of Hyundai Mobis focused on autonomous tech) and startup-like suppliers have started exporting camera systems and software algorithms, with pilot projects in partnership with overseas tech companies. These success stories underline that Korean firms can compete globally in new technology areas when they devote resources to it. Notably, most of these companies leveraged government-supported R&D programs or formed joint ventures to acquire know-how (for example, LG’s joint venture with Magna Powertrain for e-motors). They also often started by serving domestic EV programs (like Hyundai’s Ioniq or Kia’s EV series) and used that experience as a springboard to win overseas orders. In terms of exports, the pivot to EV components has begun to offset losses in ICE parts sales: Korea’s parts exports in categories like batteries, motors, and electronics have grown sharply, even as engine part exports stagnate. For instance, SL Corporation (lighting and electronics supplier) saw a 23.6% sales jump by supplying LED and ADAS parts, many for export
. These cases illustrate that proactive adaptation not only safeguards a company’s future but can also open lucrative global markets.
Global Trends in Electrification and Autonomous Technology: The global automotive industry’s transformation is both a threat and an opportunity for suppliers worldwide. On one hand, the reduction in parts count for EVs means consolidation of the supplier landscape – fewer components implies some smaller suppliers will lose their business. A concrete outcome is factory closures and consolidation in regions like Europe. For example, Bosch (Germany) decided to close a factory producing generator regulators (an alternator component) because that part is no longer needed in EVs
. This reflects a broader trend: longstanding suppliers of engines and exhaust systems globally are downsizing. A study in Europe warned that the EV shift could put 500,000 jobs at risk in that continent’s supply sector if companies cannot transition
. In Korea, there is growing anxiety that a similar wave of layoffs and bankruptcies could occur if the transition falters. In fact, many Korean small suppliers are already under financial strain – recent data showed two-thirds of European parts suppliers had profit margins under 5% due to the EV transition costs
, and Korean firms are likely experiencing similar margin pressures. On the other hand, electrification and autonomy bring new opportunities for those who adapt. EVs require large batteries, power electronics (inverters, converters), electric drive motors, and sophisticated software to manage these systems. Autonomous vehicles demand cameras, sensors, high-performance computing modules, and connectivity components. These are all areas where new suppliers can emerge and where existing ones can reinvent themselves. Globally, we see tech companies and electronics firms entering the automotive supply chain, blurring industry lines. Korea is actually well-positioned here: its strong electronics industry (Samsung, LG, etc.) and battery industry mean there is domestic expertise to tap into. Collaboration between traditional mechanical parts makers and high-tech firms is a path to acquiring new capabilities. Another trend is the reorganization of supply chains geographically. With the rise of regional electric vehicle production hubs (China, North America, Europe), suppliers are expected to establish regional operations to serve those hubs. Korean companies, as mentioned, are building plants in those regions (e.g. Mobis in Slovakia and the U.S.) to stay relevant. Additionally, standardization and international alliances are forming – for instance, companies might adopt common platforms or standards for autonomous driving technology, which could lower the entry barrier for suppliers if they align with the right standard early. Finally, “software-defined vehicles” are emerging, meaning software and updatable systems become as important as hardware. Korean parts firms traditionally focused on hardware now must consider software integration; some are hiring software engineers or partnering with Korean IT firms to offer integrated solutions (like an ECU with embedded control software for their part). In summary, the global trend is towards an automotive supply industry that is leaner, more high-tech, and more regionally localized. Korean auto part suppliers must ride this wave by shedding or diversifying away from pure ICE product lines and investing in the components of the future (motors, battery packs, power control units, sensors, etc.). The next 3-5 years are critical – as EV adoption soars worldwide and autonomous tech gradually rolls out, suppliers who haven’t at least started the shift may find themselves with a rapidly shrinking customer base. Encouragingly, the Korean government and big automakers are aware of this timeline and are pushing hard to prevent suppliers from being left behind. The concept of a “just transition” is often cited, emphasizing support for workers and SMEs as the industry restructures
. This collective effort seeks to ensure that the technological transition, while disruptive, will ultimately lead to a sustainable and innovative new supply chain in which Korean companies remain key players.
Future Outlook for Korea’s Auto Parts Industry
Changing Competitiveness amid US Tariff Risks and Chinese EV Expansion: The coming years will test the resilience of Korea’s auto parts sector as external pressures mount. One major uncertainty is the trade environment, especially regarding the United States. As of 2025, the U.S. remains the single largest market for Korean auto parts, taking about 36% of Korea’s parts exports
. This reliance means any U.S. tariff action could significantly impact Korean suppliers. The specter of a renewed U.S. tariff (up to 25%) on imported autos and components continues to loom
. If such tariffs were applied broadly (even to allies), Korean parts would become more expensive in the U.S., potentially pricing them out unless Korean firms have production within North America. The Biden administration has so far focused tariffs mainly on strategic rivals (like China), even imposing a steep 100% tariff on Chinese EVs in late 2023
, but has not targeted Korean goods. Nevertheless, protectionist sentiment could resurface, so Korean companies are wise to expand their U.S. manufacturing footprint as insurance. Meanwhile, Chinese automakers’ global push presents another challenge. Chinese electric vehicle makers such as BYD, Geely (with Volvo/Polestar), SAIC (MG), and others are aggressively entering markets that Korean OEMs and suppliers operate in. In Europe, Chinese EV exports have surged exponentially – from virtually zero to nearly half a million units per year
– capturing consumer attention with competitive pricing and fast technology development. This Chinese EV onslaught can affect Korean parts makers in two ways: (1) Korean automakers (Hyundai/Kia) face stiffer competition, which could translate to lower production or market share, indirectly hurting the parts suppliers that serve them; (2) Chinese automakers typically use their own domestic supply chains or lower-cost Chinese parts, so if they gain global market share, Korean suppliers might not benefit from that growth. Additionally, Chinese parts manufacturers are becoming more advanced and could compete with Korean firms in third markets. However, it’s not all negative for Korea. As noted, U.S. trade policy currently penalizes Chinese parts with heavy tariffs, which creates openings for Korean suppliers to replace Chinese products in the U.S.
. Moreover, Chinese cars still face brand acceptance issues in many developed markets (questions over quality, etc.), whereas Korean firms have spent decades building trust. In the near-term, Korea’s competitiveness in traditional auto parts may erode as the world shifts to EVs, but if Korean suppliers successfully pivot to the new components, they can maintain or even improve their standing. The Korean advantage in batteries (SK, LG are global leaders) and strong government-industry coordination could give its parts industry a boost relative to slower-moving competitors.
Economically, the exchange rate and cost structure will also influence competitiveness. A relatively weak Korean won could make Korean exports cheaper, aiding parts sales abroad. But high domestic labor and energy costs could hurt price competitiveness unless mitigated by automation and productivity gains. Another factor is supply chain realignment: as global OEMs adopt a China+1 strategy (seeking alternative suppliers outside China), South Korea could be a beneficiary, especially if it aligns with partner countries through FTAs and Indo-Pacific economic frameworks. In summary, Korea’s auto parts sector stands at a crossroads: it could either fill gaps left by others and climb up the value chain, or lose ground if it cannot adapt swiftly.
Strategies and Threats for the Next 5–10 Years: Looking ahead 5 to 10 years, the survival of many Korean auto parts companies will depend on strategic adaptation and risk management. A primary strategy is specialization in high-value components. Rather than competing in all product areas, firms may focus on a few critical systems (for example, EV power electronics, autonomous sensors, lightweight chassis parts) where they can be world-class and less vulnerable to commoditization. By owning a niche, they can become indispensable to global OEMs. Another strategy is deepening global partnerships. Korean suppliers should continue forming alliances or joint ventures with international players – whether it’s co-developing technology with a European Tier-1, partnering with an American startup on autonomous tech, or working with Southeast Asian assemblers as they build EV production – these collaborations can expand market access.
Market diversification is also crucial. While the U.S. and Europe remain key, the next decade could see emerging markets boom in automotive demand (Southeast Asia, India, Middle East, Africa). Korean parts makers can preemptively build relationships and distribution channels in these regions, sometimes riding along with Korean carmakers’ expansion or via local assemblers. The government’s plan to boost exports to regions like the Middle East, India (through CEPA agreements), and ASEAN is aligned with this idea
. Diversifying reduces the risk of over-reliance on a single market’s policies.
Nonetheless, several threat factors need to be managed. One is the technological gap threat – as vehicles become more software-driven, there’s a risk that traditional suppliers get cut out if they cannot provide integrated software+hardware solutions. Companies must invest in software or partner with tech firms to stay relevant. Cybersecurity and vehicle data management might become part of supplier responsibilities, areas traditionally outside their domain. Another threat is the possibility of global overcapacity. If too many suppliers invest in making, say, motors or battery packs, by 2030 the market might be oversaturated, leading to price wars. Korean firms should be cautious in gauging demand and avoid blindly following investment fads; instead, they should innovate where growth is genuinely expected (like power electronics, where demand will soar and few have expertise). Additionally, the macroeconomic environment (interest rates, material costs) can pose threats. Recent volatility in raw material prices (lithium, nickel for batteries, etc.) can squeeze parts makers’ margins. Long-term supply contracts and vertical integration (e.g., sourcing raw materials through group companies like POSCO for steel/aluminum) could mitigate this.
For Korean suppliers in particular, one internal threat is the aging workforce and succession issues. Many smaller suppliers are family-run and their leaders are nearing retirement without clear succession or modernization plans. This could lead to closures if not addressed – an industry consolidation is likely, where weaker players that cannot transition will either merge or exit. The government and large automakers might facilitate consolidation to create a stronger, albeit smaller, supplier base that is future-ready. In the next decade, we might see some of the traditional names disappear but also see new Korean entrants (perhaps spin-offs or startups) taking their place in the EV/autonomous supply chain.
Preventing Industry Collapse and Ensuring a Smooth Transition: There is a legitimate concern that if the transition to future vehicles is mishandled, the Korean auto parts industry could face a severe crisis or “collapse” scenario. To avoid this, a multi-pronged approach involving policy measures and industry actions is required. On the policy side, Korea has introduced a special law for auto parts transition (effective mid-2024) to institutionalize support
. This law and related policies need robust implementation: continuous funding, periodic assessment of suppliers’ health, and possibly a safety net for at-risk firms. For instance, if a critical supplier of brake systems is on the verge of bankruptcy due to EV shift (brakes are still needed in EVs, but maybe that supplier failed to upgrade to electronic brake-by-wire), the government and carmakers should intervene with a rescue or acquisition, rather than let it fail and disrupt the supply chain. A “just transition” fund could be set up to temporarily aid workers and companies that are negatively impacted by the phasing out of ICE parts, similar to how some countries support coal communities during energy transitions
.
From the industry side, large automakers like Hyundai and Kia have a responsibility and strong incentive to support their suppliers. They have begun doing so by committing money (part of the 14 trillion won fund) and sharing technology roadmaps with suppliers. This collaboration should deepen – for example, automakers could guarantee purchase of certain volumes of new components if suppliers invest in them, reducing demand uncertainty. They can also help retrain supplier employees by opening up their own training academies. Communication is key: suppliers need clarity on which ICE parts will be phased out when, so they can plan accordingly (a tier-2 maker of piston rings needs to know how many years of production remain and what other products they could move to).
Another important step to prevent collapse is encouraging diversification. Some automotive suppliers are finding new life by applying their expertise to other industries. For example, a company making metal fuel tanks (a product with declining future) might use its metal-forming know-how to make hydrogen storage tanks or even products outside automotive. Government programs that assist such diversification (maybe via consulting or matching them with opportunities in defense, aerospace, etc.) could save businesses and jobs. In addition, scaling up the future vehicle ecosystem domestically will help absorb some capacity – Korea is not only expanding EV production for domestic and export markets, but also investing in related sectors like UAM (urban air mobility) and smart mobility. Parts firms can pivot to making components for e-scooters, drones, or high-speed rail, for instance, as part of a broad view of “mobility parts”.
Monitoring global trends will also be crucial to react in time. The industry should closely watch how other countries manage this transition. Germany, for example, is funneling billions into transforming its famed Mittelstand suppliers and urging a gradual transition to avoid sudden shock to employment. Korea can take cues from them, as well as avoid pitfalls (like not delaying the transition too long). The next 5-10 years might see some painful adjustments – possibly a reduction in the number of Korean auto part companies as those who cannot adapt exit. But if managed wisely, it will not be a free-fall collapse but rather a controlled restructuring. By 2030, the vision is that Korea’s auto parts industry, while leaner, will be centered on future-oriented products and still be a strong pillar of the economy. The government and industry consensus is that proactive action now is the only way to ensure the industry “survives and thrives” beyond the era of the combustion engine
. As one report noted, Korea’s ambition to remain a top-3 global automotive power in the electric car age hinges on accelerating the parts sector’s transition and not leaving any capable player behind
. With sustained support, innovation, and adaptability, the Korean auto parts sector can overcome the current threats and seize new opportunities on the road ahead.
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