Car prices are the cheapest now... They will rise further this year

Raw Material Price Surge Increases Cost Burden
Hyundai Motor and Kia Raise Prices by Over 10%
Tesla and Mercedes-Benz Increase Prices by Hundreds of Thousands of Won Each

[Asia Economy Reporters Choi Dae-yeol and Yoo Hyun-seok] The upward trend in car sales prices is becoming significant. Last year, the average selling price increase rate of Hyundai Motor and Kia, which hold over 70% of the domestic new car market share, exceeded 10%, and imported car brands also raised prices on major models one after another.

This is due to the increased cost burden caused by the sharp rise in raw material prices. Since there is a time lag of several months before these price hike factors are actually reflected in the final selling price, and considering the numerous production disruptions and long waiting lists for customers this year, forecasts suggest that car prices will rise significantly again this year.

According to Hyundai Motor's business report on the 25th, the company's average domestic passenger car selling price last year was 47.59 million KRW, up 13.8% from 41.82 million KRW the previous year. Overseas, prices increased by about 20% during the same period. Kia's average price for its main leisure vehicle (RV) segment rose 13.9% to around 41.3 million KRW. This is interpreted as a result of increased sales of expensive models and price hikes on major models due to model year changes.

Price increases among foreign brands are also notable. Tesla raised prices by up to 4.4 million KRW on the Model 3 Long Range and Model Y Performance and Long Range on the 15th. This was the second increase in just four days after raising prices by 1 to 2 million KRW on the 11th of this month. The Mercedes-Benz C-Class gasoline model rose from 59.2 million KRW last year to 61.5 million KRW this year, and the Chevrolet Colorado imported by Korea GM jumped from 38.3 million KRW to 40.5 million KRW.

The sharp rise in raw material prices pushed up the final selling prices. According to Hyundai Motor's business report, the price of iron ore, which was $101 per ton in 2020, rose 47.5% to $149 last year. During the same period, aluminum increased 45.5% from $1,704 to $2,480, and copper surged 51%. Professor Kim Pil-su of Daelim University said, "With the rise in major raw material prices, it is inevitable that prices of internal combustion engine vehicles and electric vehicles will increase."

There are expectations that the price hike will be even greater this year. This is due to the sharp rise in raw material prices caused by Russia's invasion of Ukraine and worsening production disruptions due to supply chain issues. Discussions are underway to raise automotive steel prices this year to a level comparable to last year, following a rise last year after four years. On the London Metal Exchange (LME), the spot price of aluminum recorded $3,550.5 per ton on the 22nd, an increase of more than 26% compared to early January. The price of iron ore in northern China rose nearly 17% from $122.9 to $143.5 per ton during the same period.

The price decline of batteries, which account for about 20-30% of electric vehicle prices, has also slowed as demand has increased relative to supply. The average export price of lithium-ion batteries had been steadily falling over the past decade but has risen this year. Im Eun-young, senior researcher at Samsung Securities, said, "Since negotiations for raw materials and parts purchases are conducted every six months, cost increases will accelerate this year," adding, "Raw material price increases have been progressing more steeply this year, so cost pressures will become more pronounced after the second half of the year."

The ongoing semiconductor supply shortage has also contributed to delays in car production. For models with production backlogs, customers are waiting over a year, so sellers do not feel much pressure to avoid price increases. Professor Kim said, "Due to the shortage of automotive semiconductors, new car releases have been stagnant for 2-3 years, and consumers take six months to a year to purchase," adding, "Price increases are likely to continue for several years not only domestically but also for imported cars."

This content was produced with the assistance of AI translation services.