[US-China Economic War Series] ④ The Rise of China's Electric Vehicle (EV) Industry and Its Implications for South Korea's Economic Security

I. Introduction

In major industrialized nations, the automotive industry holds significant economic, political, and security importance. Economically, it is one of the industries with the largest share in the national economy. In the United States, the automotive industry has historically accounted for 3.0-3.5% of the Gross Domestic Product (GDP), nearly 10% in China in 2021, 14% in Germany, and approximately 13% in South Korea (Hill et al. 2010). Politically, the automotive industry employs a large number of workers, giving it considerable influence in elections within factory regions. From a security perspective, automobiles serve as military production facilities capable of manufacturing war materials during wartime. The statement by Charles Wilson, president of General Motors (GM), who was appointed Secretary of Defense in 1953 by President Eisenhower, who led the US to victory in World War II, that "What's good for General Motors is good for the country, and vice versa" was by no means an exaggeration.

Since the late 19th century, the automotive industry has been a stage for cutting-edge scientific and technological competition. Newly emerging advanced technologies were first applied to high-end automobiles. In this regard, the automotive industry has been used as a benchmark for evaluating a nation's scientific and technological capabilities. If the 20th century was the era of the internal combustion engine, the 21st century can be described as the era of the battery (secondary cell)-powered motor. Electric vehicles (EVs) are considered more than just a means of transportation; they are regarded as the darling of the Fourth Industrial Revolution, integrating artificial intelligence (AI), autonomous driving, and big data (Citi GPS 2023).

Against this backdrop, the global competition surrounding EVs carries significant international political implications. After World War II, the United States dominated the global automotive market. It surpassed Germany, Japan, the UK, and France in both quantity and quality. In the 1970s, following two oil crises, Japanese and German automakers, known for their fuel-efficient vehicles, began to challenge America's dominance. However, it was China that ultimately ended American hegemony. Since 2009, China has reigned as the world's largest automobile producer. In the first half of 2023, China surpassed Japan to become the world's largest automobile exporter.

China is also experiencing rapid growth in the EV industry. Until the 2010s, the United States made the most significant contributions to the development of the EV industry in terms of technology and commerce. Tesla succeeded in independently developing and mass-producing many technologies essential for EVs, and by freely sharing over 200 of its patents in 2014, it played a crucial role in the expansion of the EV industry. However, in the 2020s, Chinese EV companies are fiercely pursuing Tesla. Chinese EV companies account for half of global production, and they have also made significant strides in batteries, which constitute 40% of EV production costs. Since 2021, with the adoption of Chinese-made batteries, Tesla's advantage is now increasingly limited to autonomous driving.

The United States has implemented countermeasures to curb China's rise. In 2022, it enacted the Inflation Reduction Act (IRA), which restricts subsidies for EVs produced overseas. In response, the European Union (EU) strongly criticized the IRA as a protectionist measure. French President Emmanuel Macron clearly expressed his opposition to the IRA during his state visit to the United States in December 2022.The White House 2023). Ironically, the EU, in an effort to protect its own industry, also launched an investigation into government subsidies for Chinese EVs starting in June 2023. China argues that the measures taken by the US and the EU are not in line with free trade and is preparing retaliatory actions (Nakano and Robinson 2023).

The global competition surrounding EVs is having a significant impact on South Korea's EV industry. Following the decision to deploy the Terminal High Altitude Area Defense (THAAD) system in 2016, Hyundai and Kia's market share in China plummeted. Furthermore, no Hyundai or Kia models were included in the subsidy eligibility list under the US IRA. Additionally, the EU's climate change policies aimed at reducing carbon emissions are acting as non-tariff barriers to exports of internal combustion engine vehicles. Despite these challenging circumstances, Hyundai and Kia have grown to become the third-largest global seller in terms of sales volume in 2023.

The EV industry will be influenced by the Green New Deal, jobs, and supply chain transformations in the future. The US, EU, and China all agree on the Green New Deal. However, conflicts are intensifying regarding jobs and supply chains. From an economic security perspective, we must overcome the challenges posed by the US, China, and the EU to protect our EV industry. This requires close cooperation between the government and businesses. For protectionist measures implemented overseas, the government should officially raise concerns to minimize disadvantages for our companies. Companies must enhance security to prevent the leakage of core technologies and information. The government and businesses must collaborate to stabilize the supply chain of key materials, components, and equipment to foster the growth of the EV ecosystem.

II. Structural Changes in the Global Automotive Market in the 21st Century

1. From Engine to Motor

From the late 19th century to the late 20th century, when automobiles were first invented, the power source was the internal combustion engine. Internal combustion engine vehicles originated in European countries such as Germany, France, Italy, and the UK. However, it was the United States that achieved remarkable development in the automotive industry through mass production and mass consumption. Following the mass production of the Model T developed by Henry Ford in 1908, automobile sales surged in the US. Ford, GM, and Chrysler, headquartered in Detroit, Michigan, emerged as the big three. These companies grew larger by producing various war materials during World War II. After the oil crisis in the 1970s, as gasoline prices skyrocketed, Japanese automakers Toyota, Honda, and Nissan, which produced fuel-efficient compact cars, expanded their market share in the US. German, British, and Italian companies excelled in the luxury car market but could not match the sales volume of American and Japanese companies. In the 21st century, with the advent of electric vehicles (EVs) powered by electricity, the automotive industry has faced structural changes (Kim Kkot-byeol 2022).

<Table 1> Structure of the Automotive Industry Value Chain

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Source: Kim Kyung-yu 2022, 36

The most symbolic event was Tesla surpassing Ford, the second-largest US automaker, and GM, the largest US automaker, in market capitalization in April 2017. At that time, Tesla's production volume was 20,000 units, a mere fraction compared to GM and Ford, which produced 7-9 million units. Even more striking was that while GM reported a profit of $9 billion and Ford $6.3 billion, Tesla was projected to incur a loss of $950 million. Despite criticisms of a stock bubble, Tesla's market capitalization surpassed that of Toyota, the world's largest automaker by sales volume, in July 2020. By December, Tesla's market capitalization was larger than the combined total of the nine largest automakers worldwide (Volkswagen, Toyota, Nissan, Hyundai, GM, Ford, Honda, Fiat Chrysler, Peugeot). At this time, Tesla's sales volume was around 500,000 units, less than 1% of global automobile sales.

The surge in Tesla's stock price is attributed to investor expectations that the future of the automotive industry lies in EVs, not internal combustion engine vehicles. EVs embody three innovations. First is eco-friendly technology. While engines that generate power by burning fossil fuels emit carbon dioxide, a major cause of climate change, EVs, which use electricity to rotate motors, do not. Second, EVs, which utilize various electronic components, are much more advantageous for implementing autonomous driving. EV companies prefer the Consumer Electronics Show (CES) in Las Vegas over traditional auto shows. Lastly, it is much easier to apply advanced technologies such as artificial intelligence (AI) and big data to EVs compared to internal combustion engine vehicles. In other words, EVs are evolving as a combination of hardware (transportation) and software that provides customized services. Hyundai Motor Company's name change to Hyundai Mobility reflects this trend.

From a supply chain perspective, EVs differ fundamentally from internal combustion engine vehicles. Batteries and autonomous driving play a much more crucial role in EVs compared to internal combustion engines. Therefore, the EV supply chain is organically linked with the battery supply chain and the autonomous driving supply chain.

<Figure 1> EV Supply Chain

Source: Bank of Korea 2023, 14

2. From the United States to China

From World War II until the end of the 20th century, the United States held an overwhelming advantage in automobile production. In the 21st century, its share has fallen below 20%. Since 2009, China has solidified its position as the world's largest producer.

<Figure 2> Global Automobile Production by Country: Share (%) Since 1950

Source: Wikipedia

In terms of sales volume, China has maintained more than double the number of vehicles sold in the United States. In 2022, the sales volume ranking was: China (26,864,000), United States (13,828,337), India (4,367,964), Japan (4,167,590), Germany (2,874,828), Brazil (1,953,557), United Kingdom (1,896,259), France (1,874,805), South Korea (1,652,305), and Canada (1,551,409). Automobile export figures indicate that China is projected to export more cars than both Japan and South Korea in the future.

<Figure 3> Automobile Export Indicators (2021 = 100)

Source: Douglas 2023

China's dominance is even more pronounced in EVs. Since the 2020s, China has solidified its position as the world's largest EV producer and consumer, surpassing the US, Germany, and Japan (Joo Eun-gyo and Lee Jeong-min 2021; Ha Il-gon 2023; Yang Jae-wan 2023; Yang 2023; Kubota and Cheng 2023; Barry 2023). With existing EV companies like BYD, as well as IT companies such as Xiaomi and Huawei entering EV manufacturing, China is expected to exceed a penetration rate of 60% by 2030.

Table 2> EV Adoption Rate Projections (* E: Estimated)

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Source: CITI 2023, 3.

The remarkable progress of Chinese EVs is reflected in export performance. Since 2023, China has exported more vehicles than it has imported. According to the China Association of Automobile Manufacturers (CAAM), in the first half of 2023, 534,000 out of 2.14 million exported vehicles were new energy vehicles, accounting for approximately one-quarter. Tesla (180,000 units) and BYD (80,000 units), produced at the Shanghai Gigafactory, represented the largest share. By region, exports were primarily directed to Europe, followed by Asia and Oceania (Mazzocco and Sebastian 2023).

III. Responses from the United States and Europe and China's Rebuttal

1. The Inflation Reduction Act in the United States

The Biden administration enacted the Inflation Reduction Act (IRA) in August 2022. With a total budget of $737 billion, the act aims to enhance energy security, address the climate crisis, and support healthcare for working families. The most significant objective among these is combating climate change. To reduce carbon emissions by 40% by 2030, the U.S. government is allocating $369 billion to the clean energy industry.

The IRA's support policy for EVs is in the form of tax credits. New EV buyers with an annual taxable income below $150,000 for individuals and $300,000 for couples can receive a tax credit of up to $7,500. Used EV buyers with an annual taxable income below $75,000 for individuals and $150,000 for couples can receive a tax credit of $4,000. The conditions for these tax credits contain protectionist elements. The most critical issue is the local content requirement for materials. To qualify for the tax credit, over 40% of the battery's critical minerals must be sourced from one of the following: ① the United States, ② countries with which the U.S. has a Free Trade Agreement (USMCA), or ③ recycled in North America. The proportion of critical minerals is set to increase by 10% annually, aiming for 80% by 2027. Furthermore, at least 50% of the battery components must be manufactured or assembled in North America, with this proportion also set to increase annually by 10% starting from 60% in 2024-25, aiming for 100% by 2029. The most significant provision excludes batteries mined or processed by foreign entities of concern from tax credit eligibility starting in 2024.

<Figure 4> Scope of Application for Critical Mineral and Battery Component Requirements

Source: Kim Kyung-hoon and Ko Sung-eun 2023 10.

The list of new clean vehicles eligible for tax credits, released by the U.S. Department of Energy, includes EVs from the United States, Germany, Japan, and Sweden. Among the top five U.S. import countries—Mexico (21.7%), Japan (19.9%), Canada (15.7%), South Korea (13.2%), and Germany (11.6%) as of 2022—only South Korea was excluded, apart from USMCA member countries Mexico and Canada (Majkut et al. 2023).

<Table 3> List of New Clean Vehicles Eligible for IRA Tax Credits

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Source: Department of Energy

Looking at the share of countries importing auto parts within the United States, it is easy to confirm that China is the target for designating overseas concerned companies. In the quintile distribution of 335 auto parts (intermediate goods) imported into the U.S. in 2018, the main exporting countries are China, Mexico, and Canada. With the share of North American critical minerals and battery components increasing to over 90% in the late 2020s, tax credits under the IRA for EVs using Chinese components will become virtually impossible.

<Figure 5> Quintile Distribution of 335 Auto Parts (Intermediate Goods) Imported into the U.S.

Source: Baldwin et al. 2023, 27.

2. Europe's Response

The EU, which is strongly pursuing a Green New Deal for carbon neutrality, is struggling to respond to the U.S. IRA and the rise of Chinese EVs. The EU's basic stance on the IRA is welcoming. Because the U.S. Republican administration did not ratify or withdrew from the Paris Agreement, the EU, pursuing the Green New Deal, supported the Democratic Party's IRA.

The EU's dissatisfaction is concentrated on the protectionist elements inherent in the IRA. The most serious complaint is the "Buy American" policy. Germany and France conveyed their concerns to the U.S. that most of the EVs produced by their domestic auto companies would not be eligible for tax credits. The European Parliament urged the European Commission to file a complaint with the WTO. To appease these objections, the U.S. attempted to persuade the EU through the Trade and Technology Council (TTC), which is currently in negotiations with the EU. President Biden promised President Macron at a summit that he would review the EU's concerns (Chad 2023).

Meanwhile, as the EV industry and market size are relatively smaller compared to the U.S. and China, the EU's strategy is focused on regulation rather than promotion. Due to this dilemma, the EU has not been able to completely move away from tariff and subsidy policies. As of 2023, the EU's EV tariffs are lower than China's but higher than the U.S.'s.

<Table 4> Comparison of EV Tariffs as of 2023: U.S., EU, China

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Source: Bown 2023, 18.

Currently, the most significant competitors for European auto companies can be considered China and South Korea, as Chinese and Korean companies export far more EVs globally than U.S. companies. In batteries as well, CATL, the world's largest company, is outperforming South Korea's LG Energy Solution, SK On, and Samsung SDI (Choi Jae-hee 2023).

Against this backdrop, the EU is pursuing the Critical Raw Materials Act in 2023. The goals of this act are to set priorities and targets for critical raw materials. First are economic importance, supply chain concentration, demand substitution, strategic operation, and prediction of supply gaps. Second is establishing governance. A network for information sharing among member states will be built for early warning systems and supply chain stress tests. Third is strengthening supply chain resilience. Development projects within or by the EU will be promoted. Finally, sustainable competition will be induced. A circular economy system that recycles resources will be promoted (Cho Sung-hoon 2023).

Among member states, France is taking the lead. The "Loi Industrie Verte" (Green Industry Law), enacted in September 2023, is being called the French version of the IRA. This law provides tax credits ranging from 20% to 45% of the investment amount for green industries (batteries, heat pumps, green hydrogen, wind turbines, solar panels) to attract foreign investment. It also expedites administrative procedures such as the creation of industrial parks and factory permits to maintain new industries.

The core of this law is linking EV subsidies to carbon emission standards. More subsidies will be provided to EVs with higher eco-friendly scores due to lower carbon emissions. The eco-friendly score in this law is based on the carbon footprint and carbon emission coefficients.

ECversion=ECferreux+ECalluminium+ECAM+ECbatterie+ECATI+ECtransport

• ECferreux: Carbon footprint from the production of ferrous metals, excluding batteries

• ECalluminium: Carbon footprint from the production of aluminum used in manufacturing, excluding batteries

• ECAM: Carbon footprint from the production of materials other than ferrous metals and aluminum used in vehicle manufacturing, excluding batteries

• ECbatterie: Carbon footprint related to battery production

• ECATI: Carbon footprint from energy consumption for intermediate processing and assembly

• ECtransport: Carbon footprint related to the transportation of vehicles from the assembly area to the distribution point in France (Kim Gye-hwan, Kang Ji-hyun. 2023)

The former includes all carbon emissions generated not only during the operation of EVs but also during their manufacturing process. Measuring carbon emissions according to this concept reduces the advantage of small, fuel-efficient cars. The latter is measured based on the production process and place. The production process is divided into six parts: steel, aluminum, other materials, batteries, assembly, and transportation. Production locations are also differentiated, such as Europe and China. As a result, EVs produced in Europe can receive more subsidies than those produced outside Europe (Ahn Jun-seong 2023).

In October, the European Commission launched a formal investigation into the impact of Chinese EV subsidies on the EU's EV industry. The investigation covers all EVs manufactured in China and imported into Europe, regardless of brand nationality. If damage is confirmed, provisional countervailing duties will be imposed within nine months, and if the final investigation results are confirmed within 13 months, the provisional countervailing duties will be converted into definitive duties (EU 2023).

There are subtle differences in the positions of member states regarding this measure. While French companies, lagging in EV manufacturing, are actively pushing for the investigation, German companies, which produce EVs in China, are opposed due to concerns about provoking China's backlash (Nilsson et al.; Posaner and Burchard 2023). In fact, German automakers produced more cars in China than in Germany for the first time in 2018 (Heymann. 2020). Furthermore, German automakers have been among the most active in direct investment in China among EU member states.

<Figure 6> German Automakers' FDI in China: Amount (Million Euros) and Share (%)

Source: Sebastian 2022, 5.

3. China's Reaction

In principle, China has criticized the U.S. IRA, the EU's Critical Raw Materials Act and EV subsidy investigation, and France's Green Industry Law. The basis for this criticism is that the U.S. and EU legislation is protectionist and does not align with the principles of free trade. Nevertheless, China has not taken reciprocal measures against the U.S. and EU.

China's response is based on its advantage of dominating the battery supply chain. First, it is strengthening export controls on critical rare metals related to EVs. In July 2023, China announced export controls requiring exporters of gallium and germanium-related items (8 and 6 items, respectively) to submit end-user and end-use certificates for national security and interests, and these controls went into effect in August. Gallium is an important mineral used in semiconductors, wireless communication equipment, and LED displays, while germanium is used in semiconductors, fiber optics, infrared optics, and solar cells (Choi Won-seok et al. 2023). In October, China announced that as of December, nine items, including high-purity (>99.9%), high-strength (>30Mpa), and high-density (>1.73g/cm3) synthetic graphite and products, as well as natural graphite and products, would require export permits after undergoing dual-use scrutiny. Graphite, which has properties conducive to storing lithium-ion, is a key material for battery anode materials (Do Won-bin 2023). Although exports have not yet been restricted or banned through these measures, they are threatening in that China can use them at any time if necessary.

Second, policies regarding the security vulnerabilities of EVs are being developed. There are also regulations on Tesla and Didi Chuxing due to concerns that operational data collected from EVs operating in China could be transferred overseas. In March 2021, Tesla EVs were banned from entering security-sensitive areas such as military installations. There were instances where Tesla's operation was restricted in areas visited by high-ranking national or party officials. Tesla's access was prohibited for two months starting July 1, ahead of the Beidaihe meeting, where major party officials and elders gather privately. In July 2023, similar measures were introduced on some roads in Chengdu, which President Xi Jinping visited during the Universiade (Reuters 2022).

Despite cybersecurity concerns, when Didi Chuxing attempted to list on the U.S. stock market, authorities in July 2021 prohibited new registrations through its website/WeChat/Alipay and removed it from Chinese app stores. To prevent recurrence of such incidents, authorities have strengthened relevant laws concerning data security/cross-border data flow/confidential information management (Kim Cheol-mook 2021).

Third, it is utilizing foreign direct investment. Tesla, which began EV production at its Shanghai Gigafactory in 2019, produced 500,000 units in 2023, some of which are exported overseas to Canada, South Korea, and Thailand. Tesla signed a contract in June 2021 to receive battery supplies from CATL for three years from 2022 to 2025 (Lambert 2021). If Tesla exports Chinese-made EVs to the U.S., Chinese battery companies will have a channel to bypass the IRA with Chinese-made Teslas.

Conversely, there is also "enemyshoring" where Chinese battery companies form joint ventures with U.S. EV companies. In the global battery supply chain, Chinese companies account for 95% of cobalt, 60% of lithium, and 60% of nickel. Therefore, it is impossible to exclude Chinese companies immediately. On February 13, 2023, U.S. automaker Ford announced it would establish a battery plant in Marshall, Michigan, in partnership with China's CATL. Ford's attempt at "enemyshoring" with CATL is due to lithium iron phosphate (LFP) batteries, which have lower energy density but are about 20-30% cheaper (Choi Jae-hee 2023). The rising raw material prices for nickel-cobalt-manganese (NCM) batteries have made it difficult to increase EV production to 600,000 units by 2023 and 2 million units by 2026. Therefore, Ford, which was building NCM battery production plants with South Korea's SK On and LG Energy Solution, has brought in CATL, the leader in LFP which held a 37% global market share in 2022 (Ford Media Center 2022; 2023).

By having Ford own 100% of the joint venture shares and CATL provide only technical cooperation, the batteries produced by this joint venture became eligible for tax credits under the IRA. Ford cleverly exploited a loophole in the IRA, which lacks specific regulations for joint ventures or technology regarding battery assembly and mineral sourcing criteria (Boudette and Bradsher 2023). This fulfills the battery assembly and mineral sourcing criteria stipulated by the IRA. There was political backlash against Ford's workaround. While local residents in Pittsylvania County, Virginia, where Ford initially selected its first plant site, were favorable, expecting quality job creation, Governor Glenn Youngkin (Republican) opposed it, calling it a potential 'Trojan horse' sent by the Chinese Communist Party (Yancey 2023). Consequently, the plant was built in Michigan instead of Virginia. The day after Ford's collaboration with CATL was reported, Senator Marco Rubio (Republican, Florida), a hardliner on China, argued in a letter to Treasury Secretary Janet Yellen, Energy Secretary Jennifer Granholm, and Transportation Secretary Pete Buttigieg that the plan should be subject to review by the Committee on Foreign Investment in the United States (CFIUS) under the Department of the Treasury (Rubio 2023).

In addition, EVE Energy, a Chinese EV battery manufacturer, announced that a joint venture established with Daimler Truck, Electrified Power, and Paccar would build a battery production plant in the United States. The equity structure is planned to be 10% for EVE Energy and 30% each for the other three companies, with U.S. companies holding 90%. (Ren 2023). Chinese EV and battery companies are also expanding direct investment in EU member states (Kratz et al. 2023). If these plans successfully pass stricter investment reviews, Chinese companies could secure a hub position in the EU's EV and battery supply chain.

<Table 5> Status of Greenfield Investments by Major Chinese Battery Companies in Europe

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Source: Choi Jae-hee 2023, 11

IV. South Korea's Strategy

Due to the competition between the United States, the EU, and China surrounding the global EV market, Korean automobile companies are suffering from a triple blow (Cho Cheol et al. 2022). First, under the US IRA, not a single EV model produced by Korean automobile companies was selected for tax credits in 2023. Korean automobile and battery companies responded in two ways. First, they attempted to lobby the US government and Congress through the Korean government. Hyundai-Kia Motors succeeded in increasing sales by utilizing tax credits for leased vehicles. On the other hand, Korean companies expanded their investments in the United States. Hyundai Motor, which has production plants in Montgomery, Alabama (completed in 2006, producing 330,000 units in 2022) and West Point, Georgia (completed in 2009, producing 340,000 units in 2022), announced in May 2022 a plan to build an EV and battery production base with an annual production capacity of 300,000 units by 2025 (Chad 2023). Battery companies are simultaneously building production facilities independently and strengthening strategic cooperation with the three major US automakers. It is expected that the damage caused by the IRA will be virtually eliminated once the production facilities are completed around 2025-2026.

<Table 6> Battery Production Facilities in the US and Canada by Korean Companies

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Source: Bank of Korea 2023, 40.

Hyundai and Kia Motors are performing well in the EU market as well. In 2022, they ranked fourth in the European market in terms of automobile sales (1,060,989 units) and market share (9.4%). Electric vehicle sales amounted to 143,460 units, a 5.9% increase from 2021 (135,408 units). Sales in the first three quarters of 2023 increased by 3.5% compared to the same period last year, but market share decreased by 1.1% (Park Je-wan 2023).

Conversely, factory closures and sales are occurring in China. Hyundai Motor operated five plants: Beijing Plant 1 (completed in 2002, annual capacity 300,000 units), Beijing Plant 2 (completed in 2008, annual capacity 300,000 units), Beijing Plant 3 (completed in 2012, annual capacity 450,000 units), Changzhou Plant (completed in 2016, annual capacity 300,000 units), and Chongqing Plant (completed in 2017, annual capacity 300,000 units). While peak performance was achieved in 2016 with 1.14 million units, sales declined to 780,000 in 2017, 385,000 in 2021, and 273,000 in 2022, following the THAAD (Terminal High Altitude Area Defense) incident. Beijing Plant 1 (annual capacity 300,000 units), which ceased production in 2019, was sold to the Chinese electric vehicle company Li Auto in 2021. The Chongqing Plant (annual capacity 300,000 units), operational since 2017, has been put up for sale, and the Changzhou Plant (annual capacity 300,000 units), built in 2016, is also being considered for sale. This would leave only Beijing Plant 2 (annual capacity 300,000 units) and Plant 3 (annual capacity 450,000 units) (Kim Nam-hee 2022).

Unlike automobile companies, battery manufacturers are expanding production in China. LG Energy Solution produces in Nanjing (cylindrical and pouch-type batteries, 93 GWh), Samsung SDI in Tianjin (small batteries), Xi'an (medium-to-large batteries), and Changzhou (joint venture electric vehicle batteries with BAIC, 7.5 GWh), and SK On in Huizhou (joint venture electric vehicle batteries with EVE Energy, 10 GWh) and Yancheng (electric vehicle batteries, 27 GWh, with an additional 6 GWh planned for '24) (Bank of Korea 2023).

V. Conclusion

As conflicts surrounding the Green New Deal, jobs, and geopolitics intensify, the EV industry has emerged as a core element of economic security. With the United States, the EU, and China all agreeing on the goal of carbon neutrality, EV adoption rates are expected to rise. However, if the Republican Party, which is skeptical of the Green New Deal, comes into power, the increase in adoption rates in the U.S. could be delayed. The automotive industry, requiring large-scale employment, guarantees quality jobs, thus no country is willing to concede in the competition to attract investment for expanding EV production facilities. Conflicts among nations seeking to lead the EV industry ecosystem will also intensify, as the country that preempts the industrial paradigm shift from automobiles to mobility is highly likely to lead the Fourth Industrial Revolution.

In South Korea, the automotive industry is a key sector for both domestic sales and exports. Until recently, South Korea's EV industry has developed to a world-class level in both quantity and quality. Moving forward, it must overcome challenges such as the U.S. IRA, the EU's Critical Raw Materials Act, and China's industrial policies. Given its economic and market size, it is difficult for South Korea to compete equally with these three countries (regions) independently. Furthermore, in terms of geopolitics, South Korea lacks the capacity to pursue independent economic security with strategic autonomy.

To mitigate the vulnerabilities in South Korea's economic security, external cooperation is crucial. Particularly, to stably manage the EV and battery supply chains, diversification of materials, components, and equipment must be pursued. Care must be taken to ensure that diversification does not lead to the exclusion of specific countries. It is necessary to improve relations with China to prevent a recurrence of the situation where market share in China plummeted after the 2016 THAAD deployment controversy. ■

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Lee Wang-hwi_Professor, Department of Political Science and International Relations, Ajou University.

■ Editor: Lee Ju-yeon_EAI Researcher

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