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An automotive semiconductor (provided by LG Electronics)

The South Korean automotive industry is becoming more dependent on China for parts, a new analysis finds. In particular, the auto industry depends upon China for 60% of the raw materials and components needed for batteries, which are a key element in electric vehicles, suggesting the need for supply chain diversification.

In addition, the shortage of automotive semiconductors, which is considered the main culprit in the delayed delivery of new vehicles, is expected to last for two or three more years.

“The global supply chain’s dependence on China has intensified despite the impact of COVID-19 and China’s dispute with the US. While the Korean auto industry is becoming less dependent on Japan for parts, it’s becoming more dependent on China,” said Cho Chul, an analyst with the Korea Institute for Industrial Economics and Trade.

Cho made his comments during the Auto Industry Development Forum, held at the building of the Korea Automobile Manufacturers Association, in the Seocho District of Seoul, on Tuesday morning.

China only accounted for 1.8% of Korea’s imports of automobile parts in 2000, but that share had jumped to 36.2% by the first four months of 2022. In contrast, Japan’s share of auto part imports has declined from 45.5% in 2000 to 11.1% in the first quarter of this year.

Cho said that Korean automakers are particularly dependent upon China for raw materials and components of batteries, which are a critical part of electric vehicles. Korea depends on China for 83% of its anode materials, one of the four main battery components, and for at least 60% of the other three (cathode materials, electrolytes, and separators), according to the Korea International Trade Association.

Korea faces a similar predicament when it comes to the raw materials used to make batteries, including graphite (100% sourced from China), manganese (93%), cobalt (82%), nickel (65%) and lithium (59%).

“It’s worrisome that we’re becoming more dependent on China as we move into the era of electric vehicles. We need to diversify our supply chain by region while also strengthening the supply ecosystem at home,” said Cho.

There are also concerns that the shortage of automotive semiconductors will become protracted.

“The companies that make automotive semiconductors reduced production on the assumption that vehicle demand wouldn’t increase because of COVID-19, but vehicle demand has recovered faster than expected. The current lead time [the time it takes to fulfill a car order] has currently stretched out to 50-80 weeks,” said Lee Seong-soo, a professor of IT and electronic engineering at Soongsil University.

Given the increasing demand for eco-friendly power generation, Lee predicted that the shortfall of automotive chips will last for at least two or three more years.

“The chips used in electric vehicles’ batteries and powertrains come from the same production base as the chips used in green energy. A huge number of semiconductors are being supplied to the areas of solar and wind generation, and as demand rises in that direction, automotive semiconductors could be pushed to the back of the line once again,” Lee explained.

The field of automotive semiconductors is thought to be hard for new companies to enter because development is difficult and profit margins are low. The market is an oligopoly, with seven companies — including NXP Semiconductors in the Netherlands and Infineon Technologies in Germany — controlling an 80% share.

“The market for automotive chips isn’t large, but we need to think of this as securing key materials to protect the auto industry. We ought to be approaching this strategically rather than focusing on profitability,” Lee said.

“We need to install design and production infrastructure here in Korea to ensure that domestic automakers have a stable supply of automotive chips.”

By Ahn Tae-ho, staff reporter

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