Only 1% of car parts makers in S.Korea feel ready for transition to EVs

The automotive industry around the globe is rapidly transitioning from the manufacturing sector to the digital arena. 

That is, from an internal combustion engine locomotive to an electric vehicle; and from a car that requires a driver to an autonomous one. 

The problem is that most parts manufacturers in South Korea are not reinventing themselves fast enough for the future mobility shift. 

Not only that, a recently published paper forecast up to 20% of automotive juggernaut Hyundai Motor Group's international partners will collapse like ninepins over the next eight years. 

SUCCESSIVE BANKRUPTCY CONCERNS

Some 61 out of 316 global partners to the Hyundai Motor Group are expected to face bankruptcy by 2030, according to an internal joint report by global consulting agency McKinsey and Company and accounting firm Ernst & Young Global (EY), obtained by The Korea Economic Daily on Friday.

Hyundai Motor Co. has a controlling stake in Kia Corp. and the two companies are the country’s largest and second-largest car manufacturers, respectively.

For example, the report estimates that one partner firm to the automotive giant could see its revenue plunge 42% from $1.07 billion in 2019 to just $610 million by 2030 if it fails to promptly transition to manufacturing parts for EVs and self-driving cars. 

In sharp contrast, Chinese EV battery giant Contemporary Amperex Technology Co. (CATL) and Shenzhen-based battery maker Ebusbar will see their respective revenues skyrocket by 357% and 805% by end-2030.

McKinsey and EY are not alone in their grim outlook for automotive parts makers. 

According to a domestic report, the number of internal combustion engine parts manufacturers in South Korea will slide 30% from the 2019 figure of 1,669 to just 1,168 by 2030.

Meanwhile, automakers are transitioning to future mobility at full speed.

Hyundai Motor Co. is slated to slash the percentage of internal combustion engine-powered car production to 50% by 2025 and to less than 20% of the total output in 2030.

This is a worldwide trend.

Volkswagen Group launched MEB, a modular car platform for electric cars developed by the German automotive giant and its subsidiaries. 

Detroit-based General Motors Co., for its part, has unveiled the Ultium EV platform. 

Korea Automotive Technology Institute (Katech) published a research paper, in which it stated that while a car powered by an internal combustion engine requires some 30,000 parts, the number decreases to 18,900 parts for electric cars. 

Experts say only a handful of parts makers in South Korea are ready for this change.

EY Hanyoung, the local partner to the global accounting firm, surveyed 400 parts makers and found that 74% of the respondents said they are not fully ready for such a transition. 

Only four of the respondents, a mere 1%, answered they are well-prepared for the shift. 

“Human resources and ample capital are necessary to transition into making parts for electric vehicles but the reality is that those are considered luxuries for most small and mid-sized companies,” one of the respondents reportedly said. 

BOOST PRIVATE-PUBLIC PARTNERSHIPS

Experts say conglomerates and the government must assist the automotive parts makers in attaining competitiveness in the global arena.

One way to go about it is to expand the government's current assistance programs for small and mid-sized enterprises undergoing business reshuffles and reorganization. 

“We are seeing a vicious cycle of the parts manufacturers continuing to struggle with management mishaps while the investment for future mobility is declining,” Kim Pil-soo, professor of automotive studies at Daelim University said. “To overcome the current roadblock, we need to strengthen private-public partnerships.” 

Write to Ji-Hoon Lee at lizi@hankyung.com
Jee Abbey Lee edited this article.