"US Tariffs Are Already a Burden, Now the EV Transition?"... Small Parts Industry on High Alert

Government to Finalize 2035 Greenhouse Gas Reduction Target Soon
Up to 9.8 Million Zero-Emission Vehicles May Be Deployed Within a Decade
Small and Medium-Sized Parts Makers Focused on Internal Combustion Engines Call for Realistic Approach

As the government moves to raise its greenhouse gas reduction targets, the auto parts industry is on high alert. Over the next decade, more than 9 million zero-emission vehicles, such as electric and hydrogen cars, must be supplied. However, a significant portion of domestic companies remain focused on internal combustion engines. In addition, external uncertainties such as expanded tariffs in the United States and China's restrictions on rare earth exports are increasing the burden on the industry.

According to the automotive industry on October 14, 45.2% of domestic auto parts companies are currently producing components related to internal combustion engines. However, less than 20% of companies are preparing for a transition to future vehicles. This is due to the practical limitation that over 95% of all parts companies are small and medium-sized enterprises, making it difficult for them to secure the necessary facilities and infrastructure for conversion.

The Korea Automobile Industry Cooperative held a "Press Conference on the 2035 National Greenhouse Gas Reduction Target (NDC) Setting Related to the Parts Industry" on the 13th at the Korea Automobile Industry Cooperative in Seocho-gu, Seoul. Photo by Lee Sungmin

In this context, the government is considering a "National Greenhouse Gas Reduction Target (NDC)" that would cut greenhouse gas emissions by up to 65% compared to 2018 levels by 2035. To achieve this, about 9.8 million out of the total 28 million registered vehicles, or 35%, would need to be zero-emission vehicles. Currently, the proportion of zero-emission vehicles stands at only 3.3%, meaning it would need to be expanded more than tenfold in just over a decade. Kim Seonghwan, Minister of Climate, Energy and Environment, commented at a related forum, "We may have to make the decision to effectively halt the production of internal combustion engine vehicles."

The auto parts industry is expressing dismay at what it sees as an excessive target. This is because, in addition to external factors such as US tariffs and China's rare earth risks, they are also facing pressure to transform their businesses. The Korea Automobile Industry Cooperative held a press conference the previous day, stating, "If a rapid transition is pushed forward, it could lead to large-scale restructuring and heightened job insecurity," and urged, "The target should be lowered to around 20% to reflect the realities of the industry."

The industry is particularly concerned that, if things remain as they are, they could lose ground to China's rise. According to Automotive News in the United States, the global market share of Chinese auto parts companies jumped from 4.2% in 2020 to 10.4% last year. Taekseong Lee, chairman of the Korea Automobile Industry Cooperative, said, "China is skipping the internal combustion engine stage and focusing intensively on developing the electric vehicle industry, which gives them a competitive edge. Whether we can compete with China in the current electric vehicle market remains uncertain."

Taekseong Lee, chairman of the Korea Automobile Industry Cooperative, is speaking at the "2035 National Greenhouse Gas Reduction Target (NDC) Setting Related to the Auto Parts Industry Press Conference" held at the Korea Automobile Industry Cooperative in Seocho-gu, Seoul on the 13th. Photo by Seongmin Lee

He added, "If the industry is forced to adhere to targets that are too difficult to meet, there could be serious consequences for the auto parts supply chain and a large-scale employment crisis. We need a realistic and sustainable transition strategy that promotes the distribution of domestically produced electric vehicles and recognizes a variety of technological alternatives."

Even if the government pursues greenhouse gas reduction targets, there are calls for a "buffer" between the pace of industrial transition and on-the-ground realities. There is a need to avoid a one-size-fits-all shift to electric and hydrogen vehicles and instead prioritize the use of various technological alternatives such as hybrid vehicles and carbon-neutral fuels. In the case of hybrid vehicles, they use both electric and internal combustion engine parts, which softens the impact. In addition, the industry is calling for expanded government support, including increased policy finance and research and development (R&D) support, as well as the operation of specialized transition programs.

On this day, the Ministry of Climate held a "Comprehensive Public Discussion Forum on the 2035 NDC" to finalize the plan. The final draft will be submitted to the 30th United Nations Climate Change Conference of the Parties (COP30), which will be held in Belem, Brazil, from November 10 to 21.