Decarbonization in Korean automotive industry and Hyundai Motor Group’s challenge －From the perspective of a broad value chain－

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Abstract

Decarbonization in Korean automotive industry and Hyundai Motor Group’s challenge
－From the perspective of a broad value chain－

This research aims to discuss the paradigm shift of the value chain and suggest strategies for automakers to effectively adapt to the transition period of decarbonization.
Some implications derived from the Hyundai Motor Group (HMG) case study, could help existing automakers overcome this disruptive wave of decarbonization in the global automotive industry.

Currently, decarbonization has rapidly been advanced in the Korean automobile market as well as the global trend. The number of new vehicles sold in Korea in 2021 is 1.75 million units. Among them, the new sales volume of zero emission vehicles (ZEVs) was about 109,000 units, accounting for 6% of the total new car sales. A ZEV refers to the vehicle, which does not emit carbon dioxide (hereinafter, CO2) when it runs running, such as a battery electric vehicle (BEV) or a fuel cell electric vehicle (FCEV). On January 27, 2022, the Korean Ministry of Environment announced that this country would spread a total of 500,000 ZEVs by the end of 2022, and would actively promote electrification toward carbon neutrality in the transportation sector. There are 88,907 public charging infrastructure for electric vehicles and 110 H2 stations installed in Korea, as of July 2021 (Korea policy briefing, Dec. 16 2021, www.korea.kr).

The Korean automotive industry has regulations such as corporate average fuel economy (CAFÉ) regulations and low emission vehicle (LEV) sales mandates, but until now, those regulations have not been very effective. On the other hand, the Korean government has been investing intensive subsidies to promote ZEV spread. This generous subsidy seems to have contributed to the spread of ZEV and its infrastructure in South Korea. At the same time, excessive dependence on subsidy policies has been pointed out as a problem.

Amid these environmental changes, HMG has increased its sales volume of ZEVs. For example, HMG's global BEV sales from January to October 2021 ranked fifth in the global market with 185,369unit sales (Yonhap News, Feb. 7 2022). HMG also ranked first in the Korean new car market in the segments of domestic sales of BEVs and FCEV from January to October 2021(Asia Economy, Nov. 3 2021）. These results are largely due to HMG's strategy to adapt to the decarbonization trend. The success of the decarbonization strategy of HMG suggests as follows.

First of all, accurately grasp the essence of environmental change and its impact. In terms of decarbonization, three types of environmental regulations are being introduced in the decarbonization of the global automotive industry: (1) Corporate Average Fuel Economy (CAFE) regulation, (2) Mandatory sales of Zero-Emission-Vehicles (ZEV) with a certain ratio, (3) Notice of prohibition of sales of conventional vehicles.
All three environmental regulations involve penalties: (1) Carbon pricing composed of carbon tax type and emissions trading type and (2) Prohibition of sales

Second, stretch your value chain concept to encompass both supply and demand sides. Traditionally, value chain terms have been used at various levels: The corporate level, and industry level. However, the common feature of these various value chains is that they are mainly limited to the supply side.
However, CO2 emits when you drive a car, when you produce fuel for the car, and when you supply car components. Therefore, to reflect the impact of decarbonization in a company's strategy, it is necessary to track and view the big picture of the value chain including production process, use, and disposal by customers. We suggest an expanded value chain composed of a demand cycle and supply chains.

Third, try to adapt to the new value chain shift in an ambidextrous way. You have to figure out how to get an exploration of new resources and exploitation of existing resources balanced.
HMG has effectively used existing internal resources during the transition period of decarbonization and enjoyed the economy of scope.

Finally, find out your partners and collaborate with them in the new value chain.
If you want to become a first-mover during the value chain shift, you have to figure out how to maximize the advantage of the first-mover and how to minimize the first-mover investment.
Create your own domain on the value chain. It is significant that you and your partner should be complementary to each other in an emerging value chain.
HMG co-created a small value chain for the fuel cell truck mobility business in Swiss with complementary partners.