Hyundai Motor Group Executive Chair Chung Euisun, left, shakes hands with U.S. President Joe Biden after addressing the press on the carmaker's decision to build a new electric vehicle and battery manufacturing facility in the U.S. state of Georgia in May 2022. Reuters-Yonhap
Hyundai Motor and Kia have to preemptively diversify their export channels, as U.S. President-elect Donald Trump moves to impose higher tariffs particularly on countries with a strong trade surplus with the world's largest economy, experts and industry officials said Monday.
The two Korean carmakers' exports to the U.S. for the first three quarters combined this year accounted for half of their global total, according to data from the Korea International Trade Association.
In 2023, Korea ended up reporting a trade deficit of $10.3 billion (14.36 trillion won), but the country attained a record-high trade surplus of $44.4 billion with the U.S., driven mainly by exports of cars and chips.
Experts and industry officials said the two major domestic carmakers need to reduce their reliance on the U.S., and expand their sales channels into other untapped markets, so they can minimize potential repercussions from the Trump risk.
“Trump has already expressed his unwavering willingness to slap stronger tariffs on companies based in countries that report a trade surplus with the U.S.,” Kim Pil-soo, an automotive technology professor at Daelim University College, said.
Hyundai Motor's manufacturing facility is under construction in the U.S. state of Georgia in this photo released by the Georgia state government, Feb. 26. Yonhap
Hyundai Motor and Kia have to reduce their revenue reliance on the U.S. and make up for it in other lucrative territories, such as Southeast Asia and the Middle East, according to the professor.
“There is no clear breakthrough other than increasing the carmakers' revenue structure in the less saturated markets,” he said.
Trump pushed to impose higher tariffs on aluminum and steel during his first presidency between 2017 and 2021, citing Section 232 of the U.S. Trade Expansion Act. However, many critics argue Trump will widen the sanctions on global carmakers headquartered outside of the country in his second term, which starts in January.
Hyundai Motor Group's two carmakers are also reshaping their strategy by moving to increase production of hybrid cars at Hyundai Motor Group Metaplant America in Georgia. The facility was supposed to manufacture only electric vehicles (EV), but as the global automotive industry entered an early phase of the EV chasm, the carmaker decided to transform it into a facility capable of producing both EVs and hybrids.
U.S. President-elect Donald Trump addresses supporters during the Election Night watch party at the West Palm Beach Convention Center in West Palm Beach, Fla., Nov. 6. EPA-Yonhap
Even if both Korean carmakers have multiple manufacturing facilities in the U.S., their manufacturing is done in Korea for almost half of its vehicles for export to the world's top economy. According to data from the Korea Automobile & Mobility Association, Hyundai Motor's exports to the U.S. accounted for 54.7 percent of the total between January and September this year. Those from Kia also reached 40.2 percent during the same period.
Another major risk factor is Trump's pledge to impose a baseline tariff of 10 percent on all imported goods to the U.S. For now, Korea's vehicle exports to the U.S. are exempt from tariffs under the Korea-U.S. Free Trade Agreement.
Once Trump turns the pledge into a reality, both carmakers are feared to face a revenue decline of trillions of won annually in the U.S.
A Hyundai electric IONIQ 5 is parked at the National Stock Exchange during the listing ceremony of Hyundai Motor India's initial public offering in Mumbai, Oct. 22. Reuters-Yonhap
Risk from China's emerging carmakers
Industry officials argued that China's rise will, however, come as a stumbling block for Korean carmakers' expansion into the Southeast Asian and Middle Eastern markets.
“Chinese carmakers and battery firms, such as BYD, make robust growth each year, and make aggressive investments mostly in Southeast Asian markets, so the Korean carmakers will have to engage in fierce competition against such players seeking aggressive growth with price competitiveness,” an official from a carmaker here said.
For instance, BYD shared its investment plan worth $1.3 billion won in Indonesia, and seeks to achieve an EV market share of 40 percent by 2030 in India. Hyundai Motor Group also identified India as its next major growth engine, recently completing its much-touted initial public offering there.
“Hyundai Motor and Kia are no match to Chinese firms in terms of price competitiveness, so Korean carmakers have to come up with a clear differentiation strategy — either by enhancing their corporate image or improving the commercial value of their lineups.”
The official also highlighted the dire need for the government and auto parts makers here to strengthen their alliance with local carmakers, so they can maintain their global competitiveness.
“Diversifying export channels is a step in the right direction, but this is not as easy as it looks due to the toughening rivalry with Chinese carmakers,” he said. “The government needs to offer carmakers more tax benefits or other incentive packages, so they can ensure sustainable growth in the global market.”
He added that the government, for its part, needs to appeal more to the upcoming Trump administration that Korean carmakers widen job creation and expand investment for the benefit of the U.S. economy.