Chinese electric-vehicle makers are accelerating their overseas expansion — acquiring foreign parts suppliers and building factories abroad — as their home market approaches saturation. With major economies such as the United States and the European Union stacking up import barriers against Chinese cars, these companies are now moving to build local production ecosystems instead.
Last year, Chinese automakers' investment in Europe reached 7.6 billion euros (about 12 trillion won), a 46% jump from a year earlier. Ninety-three percent of that investment was concentrated in the EV supply chain. The strategy is to build plants directly in Europe — the world's second-largest EV market — or to use existing manufacturers' production facilities to circumvent import restrictions.
China's rapid localization is driven largely by the limits of its domestic market and by foreign trade barriers. In the first half of this year, domestic sales of new-energy passenger vehicles in China reached 4.7 million units, or 54.1% of total passenger-car sales. Yet the profit margin was 3.8%, down from 4.8% a year earlier. To make matters worse, regulations targeting Chinese cars are tightening in major markets. The U.S. Congress is pushing legislation to bar rerouted exports by companies funded with Chinese capital. Europe is considering expanding the range of Chinese-made EVs subject to tariffs, which run as high as 35.3%, while Japan grants tax credits to domestically produced EVs.
The relentless offensive by Chinese EVs is a direct threat to Korea's auto industry. In the first half of this year, domestic sales of Chinese-made EVs came to about 70,000 units, a 178% surge from a year earlier. The domestic market share of Chinese-made EVs, just 4.7% in 2022, soared to 36.5% in the first quarter of this year. That stands in sharp contrast to the share held by domestically made EVs, which slid from 75% to 57.2% over the same period. All this has happened in just four years. Backed by massive government support and having sharpened their price and quality competitiveness, Chinese EVs are taking over Korea's home market almost unchecked.
Against this backdrop, the government's decision to exclude EVs from the support offered under its version of the U.S. Inflation Reduction Act (IRA) can only be called shortsighted — a failure to reckon with the global trend and the reality facing companies. The government cites overlap with purchase subsidies, trade friction and the burden on tax revenue. But major economies such as the United States and Japan run subsidies and production tax credits in parallel. And at a time when the government is even creating a future-response fund financed by surplus tax revenue, leaning on the revenue burden as a reason carries little weight. Like the six future growth engines — semiconductors, artificial intelligence (AI) and rechargeable batteries among them — EVs have more than enough reasons to be included in Korea's IRA.
