Car Prices Are the Lowest Now... They Will Rise More This Year (Comprehensive)

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

Hyundai Motor Ulsan Plant Production Line

[Asia Economy Reporters Choi Dae-yeol and Yoo Hyun-seok] The upward trend in car sales prices is becoming significant. Last year, Hyundai Motor and Kia, which hold over 70% of the domestic new car market share, saw their average selling price increase by more than 10%, and imported car brands have 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 reflected in the final selling price, and considering the ongoing production disruptions and long waiting lists this year, forecasts suggest that car prices will rise significantly again this year.

Car Price Increases Affect Both Domestic and Imported Vehicles

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 main leisure vehicle (RV) average price rose 13.9% to around 41.3 million KRW. This is attributed to an increase in sales of higher-priced 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 jumped from 59.2 million KRW last year to 61.5 million KRW this year, and the Chevrolet Colorado imported by Korea GM rose from 38.3 million KRW to 40.5 million KRW.

Tesla CEO Elon Musk attending the opening ceremony of the Tesla factory in Germany

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 USD per ton in 2020, rose 47.5% to 149 USD last year. During the same period, aluminum increased 45.5% from 1,704 USD to 2,480 USD, and copper surged 51%.

The ongoing semiconductor supply shortage also contributed to delays in car production. For models with delayed production, customers have been waiting over a year, so sellers do not feel much pressure to hold back on price increases. Overseas, situations have arisen where buyers pay premiums or dealers demand prices higher than the manufacturer’s suggested retail price, prompting warnings from automakers to dealers. Professor Kim Pil-su of Daelim University said, "With the rise in major raw material prices, it is inevitable that prices for internal combustion engine and electric vehicles will increase."

"Cost Increases Accelerate, Prices to Rise Further This Year"

Car price increases are expected to continue this year. This is due to the sharp rise in raw material prices caused by Russia’s invasion of Ukraine and ongoing production disruptions from supply chain issues. Automotive steel prices rose last year for the first time in four years, and discussions are underway to raise prices again this year to a level comparable to last year. On the London Metal Exchange (LME), the spot price of aluminum reached 3,550.5 USD per ton on the 22nd, more than 26% higher than in early January. The price of iron ore in northern China rose nearly 17% from 122.9 USD to 143.5 USD per ton during the same period.

Vehicles produced at Hyundai Motor's Russia plant are being transported.

Battery prices, which account for about 20-30% of electric vehicle costs, have also stopped declining 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. With higher manufacturing costs due to raw materials and logistics, and rising used car prices, a structure has formed where new car prices are pushed up again.

Im Eun-young, Senior Research Fellow at Samsung Securities, said, "Negotiations for raw materials and parts purchases are conducted every six months, so cost increases will accelerate this year," adding, "Raw material price increases have been steeper since the beginning of this year, so cost pressures will become more pronounced in the second half."

The ongoing semiconductor supply shortage is also considered a factor driving price increases. Following COVID-19 and the war, a Japanese earthquake caused vehicle semiconductor factories to halt production. The supplier-favored market is expected to continue for some time, and consumer preference for high-priced vehicles also fuels price hikes.

Professor Kim said, "Due to the shortage of vehicle semiconductors, new car releases have stagnated for 2-3 years, and consumers take six months to a year to purchase a vehicle. This situation is likely to cause price increases not only domestically but also for imported cars for several years."

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