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By Kim Yoo-chul
The world's largest "internet of cars" market is pitting automakers against technology companies as they wrestle for control over a multi-trillion-dollar system. Korea is well-positioned for the so-called "Auto 2.0."
Equipped with global players in both tech -- smartphones, batteries, memory chips and displays -- and cars, Korea has the necessary pieces in place -- at least on the hardware side -- to emerge as a key player.
The question is who will emerge with the keys to the car of the future of Korea: Samsung Electronics or LG Electronics -- or could it be both?
In a 57-page analysis, U.S. investment bank Morgan Stanley said Korea could capture up to 10 percent of the total addressable market.
"And for a country that relies on exports of electronics and autos and that is suffering from a weakening of traditional cyclical industries, the economic impact ranging from GDP growth to job creation to efficiency improvements could be powerful," the bank said.
Samsung and its longtime bitter cross-town rival LG are taking different approaches. Both groups have made clear their intention to become key players in the "Auto 2.0" market.
Samsung is putting a greater emphasis on becoming an operating system and platform provider in autonomous driving while LG primarily wants to supply key parts for electric vehicles.
Morgan Stanley said LG appears well positioned.
"Having identified the electric vehicle market early on as a growth opportunity, LG Group (LG Electronics for motors and infotainment; LG Chem with EV batteries; LG Innotek with camera modules and sensors) has made steady progress so far," it said in the analysis. "It has now become the core EV parts supplier to General Motors' EV lineup and its EV contribution (both in revenue and profit) across all related names is showing signs of growth."
As LG builds its track record, the investment bank said, "We expect additional opportunities to follow."
Its thoughts on Samsung are that the country's top conglomerate is aiming higher. "Despite its success in the global smartphone market, its failure to establish itself as an operating system provider, which is far more lucrative, appears to be fuelling an ambition to become an Auto 2.0 ecosystem and platform provider. However, we believe this will be a much bigger challenge."
Morgan Stanley said neither Samsung nor LG has been able to draw clear conclusions on the winners in the global "Auto 2.0" transition and the debate will likely continue to evolve as the momentum accelerates.
Is there any chance that Samsung or LG will manufacture EVs under their own brand names? This is one possibility, according to its observation.
"By leveraging their smartphone leadership and expertise, both Samsung and LG can potentially begin to manufacture vehicles under their own brands. But the majority of initial revenue opportunities for tech names would be captured by their battery groups (Samsung SDI and LG Chem) with them likely sourcing other key components from the existing auto parts suppliers," it added.
Given Samsung's proven hardware capability and the company's growing emphasis on the software and user interface, where tech and connectivity become important, Samsung is advised to pursue more acquisition deals helping it give a significant move in monetizing the automotive industry.
"Samsung has completed six merger and acquisition (M&A) transactions and one equity investment deal since June. Given Samsung's cash balance of $89 billion at the end of 2017, the company still has plenty of resources for future acquisitions, which should complement the growing demand for improved shareholder returns."
LG Electronics is encouraged to keep moving on boosting the firm's preferred partnership strategy and lifting manufacturing.
Its strategy is to bring decades of innovation and know-how from the home into the automobile, for example, manufacturing parts, and is focused on building partnerships with auto OEMs to penetrate this growing market as a vehicle component supplier.
The company is working with GM to mass produce 11 core components for the new Chevy Bolt and has built up a significant order backlog with several auto OEMs, especially in EV-related areas.
"LG's advanced telematics technology with high-precision map data and location services powered by the HERE Open Location Platform. Through their planned collaboration, the companies aim to support automakers globally with a robust and secure data communications hub for highly automated and fully autonomous cars," according to the analysis.
"When fully developed, telematics will play a key role as the communication hub for autonomous vehicles. The company has been supplying in-vehicle infotainment for over 10 years and has proprietary technology on inverters, compressors, and motors for EVs," the investment bank wrote.
"Since its inception the chaebol structure has fostered a system of growth from within rather than via cooperation. Even nowadays, competition remains fierce -- especially between Samsung and LG -- in many areas. If the Korean companies could ever find ways to cooperate, even to a small degree, we see a complementary fit and believe that synergies would present enormous opportunities for these companies as well as for the Korean economy," it said.
