Electric cars surge as Europe turns away from the internal combustion engine

Posted on : 2017-08-22 18:18 KST Modified on : 2017-08-22 18:18 KST
Transition is good news for battery manufacturers, but Hyundai Motor risks being left in the dust

“You can’t fight the future” – it’s a slogan that’s often used about electric cars. But that slogan has always carried the caveat of “someday.” It was assumed that consumers and producers would be slow to let go of the internal combustion engine, and yet another diesel scandal ignited by a report in German weekly magazine Der Spiegel last month is shaking that assumption to its core. Allegations that five German automakers engaged in wholesale collusion over exhaust scrubbers is speeding up the timeline for the electric car market.

How are South Korean automobile companies responding to these changes? The situation is quite different for the companies producing batteries, which are a key component of electric cars, and for automakers, which have been reluctant to develop electric cars.

■ Global electric car market on the fast track

Europe will be eliminating the internal combustion engine in the not-too-distant future. Starting in 2019, the city of London is planning to charge a 12.5 pound (about US $16) fee for entry into the city center by vehicles that exceed exhaust standards. The German Bundesrat has passed a resolution to eliminate vehicles running on fossil fuels by 2030, and both the UK and France have decided to ban the sale of cars running on an internal combustion engine by 2040.

China has also been building its electric car market by introducing a quota system that mandates the production of what it calls new energy vehicles, or NEVs for short. In a bid to foster its domestic automobile industry while curbing pollution, China plans to impose penalties on automakers that don’t meet production standards for NEVs: 8% of yearly production in 2018, 10% in 2019 and 12% in 2020.

In line with these trends, global automakers are racing to make the shift to electric cars. Volkswagen, Daimler and BMW are planning to increase the share of electric cars in their total lineup of models to around 20% by 2025. Volkswagen has even promised to invest 9 billion euros (about US $10.6 billion) in electric car development so that it can unveil at least 30 models by 2025. Japanese automaker Toyota had been concentrating on hydrogen cars, but it has decided to change its strategy and increase its capital partnership with Mazda to jointly develop an electric car.

The market is getting much bigger in the US, as well. Last year, Tesla released the Model 3, and it is also partnering with Japanese company Panasonic to build the Gigafactory 1 (a facility for manufacturing lithium-ion batteries) in the state of Nevada, which is slated to be completed next year. By 2020, Tesla plans to produce 1 million units of the Model 3 a year. GM has released an electric car called the Bolt and has the goal of selling 500,000 in 2025. In short, global automakers are busily working to set up a mass-production system for electric cars to make them more profitable than their internal combustion engine counterparts.

■ Good times for electric car battery makers

As global companies rush to release electric cars, battery makers are all smiles. Japanese market research firm B3 predicted that the value of the industry would increase from 9.2 trillion won last year to 18.8 trillion won (about US $8.1 billion to US $17 billion) by 2020. The unexpectedly rapid growth of the electric car market is brightening the prospects of South Korean companies in related fields.

LG Chem, which is the world’s second biggest battery manufacturer after Panasonic, increased its market share from 5.9% last year to 13.2% this year. LG Chem reportedly entered the electric car battery market at the request of Hyundai Motor Group Chairman Chung Mong-koo, and now it has basically made that business area its focus. With a list of clients including not only Hyundai and Kia Motors but also GM, Volkswagen and Renault, LG Chem has a high potential for future growth. Since over half of its more than 10 trillion won (US $9 billion) in orders are reportedly from companies in Europe, the diesel scandal could come as a huge boon to the company.

Samsung SDI is recognized for having a high degree of technical proficiency in the areas of battery density and power efficiency. A spokesperson for the company said that by 2021, it will be able to cut the production cost of electric car batteries in half. SK Innovation has also spun off its Battery and Information Division to establish an expanded battery business office. The company will be completing a second battery factory in Seosan, South Chungcheong Province, by the end of the year as it seeks to cash in on the growing electric car market.

South Korean batteries’ share in the North American electric car market has recently surpassed 40%. Industry insiders predict that South Korean companies will maintain their competitive advantage as frontrunners for the next three to five years.

■ Hyundai Motor focusing on hybrids, hydrogen cars

There are few indications that domestic automakers are responding to electric cars. Hyundai Motor has emphasized the parallel development of electric cars and hydrogen cars, but it has fallen behind in the electric car market. The upstart automaker that enjoyed a dizzying ascent to fourth place worldwide is once again a latecomer, this time in electric cars.

On Aug. 17, Hyundai unveiled its next-generation hydrogen car and announced that it would be expanding its eco-friendly lineup to 31 models by 2020. But the focus here is not so much on electric cars as on hybrids that retain an internal combustion engine. These 31 eco-friendly models only include eight electric cars, which are upgrades of existing models (the Ioniq, Soul, Ray, Kona and Genesis). In addition to these, Hyundai is planning to develop two hydrogen cars, 10 hybrids and 11 plug-in hybrids.

“Hyundai Motor can neither abandon its significant investment in hydrogen cars nor give up the internal combustion engine-based vehicles that guarantee short-term earnings, so it has fallen behind in the electric car market. Hydrogen cars aren’t likely to be commercialized until 2035, and electric cars will be filling the gap over the next 20 years,” said Lee Hang-gu, a senior analyst at the Korea Institute for Industrial Economics and Trade (KIET). Lee urged Hyundai to revise its strategy while it still can.

Another reason Hyundai Motor is expected to have trouble reacting quickly to rapid expansion in the global electric car market is its lack of suppliers with technological skill in electric car parts. “The companies supplying parts to Hyundai Motor have had to focus on cheap assembly, which has kept them from developing their own R&D capability. This technological shortfall won’t be easy to solve,” Lee said.

Hyundai Motor disputes the claims that it has ignored electric cars, describing this as a “misunderstanding.” “Hyundai Mobis and other subsidiaries have been focusing their efforts on developing and producing all kinds of eco-friendly vehicles, including electric cars,” a company spokesperson said.

“An automaker that expands into the production of batteries and other parts is at risk of dispersing its capabilities. Instead, we’re strengthening our partnerships not only with Hyundai Motor suppliers but also with overseas firms,” the spokesperson added.

By Choi Ha-yan, staff reporter

Please direct questions or comments to [english@hani.co.kr]

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