Hyundai Motor Faces Headwinds from Inflation Reduction Act... Union Approval Key to 'Expanding US Production'

US Electric Vehicle Market Growth Slows
Need to Expand Local Production Lines or
Accelerate New Factory Openings
But Requires Approval from Domestic Labor Unions

[Asia Economy Reporter Kiho Sung] Hyundai Motor Group is facing deep concerns over its strategy to target the US market, a key player in the global automotive industry. Although models like the Ioniq 5 and EV6 have received positive responses and rapidly grown in the US electric vehicle market, the passage of the Inflation Reduction Act (IRA) has put a brake on this momentum. Industry experts point out that Hyundai Motor Group needs to expand electric vehicle production lines at local manufacturing plants or accelerate plans to establish new factories in order to qualify for tax benefits. However, obtaining consent from domestic labor unions is expected to pose significant challenges.

According to the automotive industry on the 22nd, Foreign Minister Jin Park conveyed South Korea’s concerns regarding the Inflation Reduction Act during a phone call with US Secretary of State Antony Blinken on the 19th. Meanwhile, a resolution has been submitted to the National Assembly, and both the government and political circles are actively working on countermeasures.

However, the industry is skeptical about expecting any significant effect. An industry insider stated, "Since this law targets the entire US market globally, even if our government and political circles protest, it is unlikely that only we will be exempted." Because of this, the argument to quickly increase local production volume to benefit from the IRA is gaining traction.

However, agreement with labor unions remains the biggest variable. According to collective bargaining agreements, Hyundai Motor Group must obtain consent from domestic unions to increase overseas production volumes. The Hyundai Motor collective agreement signed in 1999 includes a clause stating that "matters affecting employment, such as transferring vehicle models to overseas factories and confirming production plans for the same models produced domestically at overseas factories, shall be reviewed and resolved through a joint labor-management committee." Kia also has similar provisions in its collective agreement.

In Hyundai Motor’s case, the recently agreed new factory construction is a concern. Last month, Hyundai Motor’s labor and management agreed during the annual wage negotiations to build a new electric vehicle-dedicated factory in Ulsan by 2025. This will be the first Hyundai Motor factory established domestically in 29 years since the Asan plant was built in 1996.

However, with the need to increase US production under the IRA, the allocation of production volume for the newly expanded domestic factory remains a challenge. Previously, exporting vehicles produced domestically to the US was considered, but vehicles produced domestically are fundamentally excluded from subsidies under the Inflation Reduction Act. Furthermore, discussions on volume allocation are expected to determine the scale of the new domestic electric vehicle factory, making friction with labor unions inevitable.

Kia is facing similarly difficult circumstances. On the 19th, the Kia labor union passed a strike vote with 89.4% approval. The union is blocking not only wage increases but also overseas investments. The union has raised its voice demanding the withdrawal of Hyundai Motor Group’s $13 trillion investment plan in the US and the concretization of the $63 trillion domestic investment plan.

The industry expresses concern over this situation and advises the unions to take a more proactive stance. Another industry insider said, "Because the law was passed and implemented so suddenly in the US, Hyundai Motor Group is only now beginning to discuss this issue," adding, "Considering the urgency of the company’s situation, we hope the unions will engage in more constructive discussions."

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