Building Resilient Automotive Supply Chains through Cooperation with India

Byungyul Park ()
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Byungyul Park: Korea Institute for Industrial Economics and Trade, Postal: Sejong National Research Complex, Korea Institute for Industrial Economics and Trade, 370 Sicheong Dae-ro C-dong 8-12F 30147, Republic of Korea, http://www.kiet.re.kr/en

No 25-9, Industrial Economic Review from Korea Institute for Industrial Economics and Trade

Abstract: Escalating tensions between the United States and China and the prolonged conflict between Russia and Ukraine in Eastern Europe have pushed supply chain stability to the top of the agenda for South Korean automakers. In August 2022, during the administration of former US President Joe Biden, the US Congress passed two landmark pieces of legislation: the CHIPS and Science Act and the Inflation Reduction Act (IRA). These laws were designed to contain China’s expanding influence by reorganizing critical supply chains in semiconductors, batteries, and electric vehicles (EVs) around the US. The IRA offers consumers large federal tax credits on purchases of EVs, but only for vehicles assembled in North America. Moreover, it excludes batteries, parts, and materials produced in so-called “foreign entities of concern,” principally China, from eligibility for subsidies. This has necessitated a significant realignment of the EV and auto parts supply chains. After the IRA became law, many cars made by automakers instantly became ineligible for subsidies, squeezing Korean EVs’ share of the American market. To mitigate this, Hyundai Motor expedited the construction of its EV plant in the US to ensure that its EVs would qualify for tax benefits. China responded to US sanctions with export controls on key materials critical in the automotive industry. In August 2023, it restricted the export of gallium and germanium, which are important materials used in the manufacture of semiconductors, and in October 2023, Beijing extended these restrictions to include graphite, a core component of lithium-ion batteries. These retaliatory measures have had both direct and indirect consequences on Korea’s automotive supply chains. As the geopolitical rivalry between the US and China heats up, the supply chains around these two superpowers are likely to ossify into two distinct blocs. This exposes Korean automakers to significant risk, given their dependence on China for auto parts and reliance on the US as a destination market for their exports. In this paper, we propose a diversification strategy for Korean automakers that leverages the country’s strong relationship with India in the automotive sector. We argue that such a strategy is required to safeguard the country’s automotive industry, a key strategic sector.

Keywords: supply chains; batteries; electric vehicles; EVs; subsidies; battery industry; manufacturing; China; automotive industry; Hyundai; Kia; South Korea; Korea Institute for Industrial Economics and Trade; KIET (search for similar items in EconPapers)
JEL-codes: L62 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2025-04-30
New Economics Papers: this item is included in nep-cis and nep-tre
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