On the top of an axe you believe in?Why Tesla CEO Elon Musk Supported Abolishing the IRA

-Do you agree with Musk's abolition of the IRA?
due to Tesla's share-cutting competitor's growth-Korea, the largest investor in the U.S., inevitably damages the automobile industry in the event of scrapping the IRA
- Abolition of subsidies → Deepening price competition, not competing with Korea, Tesla, GM, and Ford
-Hyundai Motor's Muñoz CEO Appoints Global Competitiveness + Commercialization Strategy
-Factory rates already plummet due to battery, cash, worsening Trump risk negative

■ Broadcast: YTN Radio FM 94.5 (09:00-10:00)
■ Host: Reporter Cho Tae-hyun
■ Air date: November 18, 2024 (Monday)
■ Talk: Lee Ho-geun, professor of the Department of Future Automotive at Daedeok University

-Trump risk strategy? Stabilizing battery prices through securing raw materials 必
-Being a raw material purchase line could cause bad news from China, securing diversity 必

* The text below may differ from the actual broadcast content, so please check the broadcast for more accurate information.


◆ Reporter Cho Tae-hyun (hereinafter referred to as Cho Tae-hyun): There is the U.S. Inflation Reduction Act IRA. It's a bill that the Biden administration made to control inflation. A representative example is subsidies paid to electric vehicles. During the presidential election, Trump has openly mentioned the abolition, calling it a green fraud. At the same time, there were reports that the Trump team had begun full-fledged discussions to dismantle the IRA. The problem is that in this case, our companies, which have been investing and strategizing on the premise of IRA, cannot avoid significant damage. During the controversy, the Korean government drew the line that it has not yet been confirmed, but it seems that there is no way to erase this great anxiety. Today, we're going to talk about this in detail. I'm calling Lee Ho-geun, a professor of the Department of Future Automotive at Daedeok University. Is the professor out?

◇ Lee Ho-geun, professor of the Department of Future Automotive at Daedeok University (hereinafter referred to as Lee Ho-geun): Yes, hello.

◆ Cho Tae-hyun: Hello. Professor, after Trump's election, the industry is actually like that. I think investors are quite nervous as well. IRA-related controversy, I think movement is detected earlier than I thought.

◇ Lee Ho-geun: That's right. The reason why Trump is in a hurry is that he needs to save the budget by abolishing the electric vehicle tax credit to secure the resources needed to implement the pledge. If realized, it is now expected to hurt the competitiveness of Hyundai Motor and battery manufacturers, who have increased their investment in the U.S. in line with the IRA, which provides various tax benefits for car batteries manufactured in the U.S. One hope, however, is that foreign companies built factories to benefit from the IRA in industrial areas with the fall of the Republican-based Rust Belt, such as Michigan, Ohio, and Georgia. However, since many Republicans were elected in these areas, it would be difficult to abolish them. There are also opinions like this, but there is a common prediction that damage such as reduction will be inevitable anyway.

◆ Cho Tae-hyun: This IRA is about procuring raw materials from the U.S. or U.S. supply chain and giving tax credits to electric vehicles made here. If this disappears, the damage will be inevitable. Also, what we expected a little bit is that Elon Musk is the CEO of Tesla because he is right next to Trump. So I think there was some expectation that they would oppose these things, but I don't think it's at all. Why do you think Elon Musk is so in favor of this move?

◇ Lee Ho-geun: If you look at Tesla's change in market share, here's the answer. Recently, electric vehicle sales have continued to increase by 5% compared to the previous quarter, with Tesla's market share falling from 70% in 2022 to 48.2% this year. In the end, it has been continuously decreasing, but Tesla is an icon of innovation, but as traditional automakers decide to produce electric vehicles, Tesla's market share in various quality and marketability gradually decreases. So there's an analysis by Tesla, or Elon Musk, that competitors include GM, Japanese brand Hyundai Motor, and Kia Motors, and their growth was due to subsidies. In the end, they would have sympathized with the need to repair subsidies to press for the growth of competitors.

◆ Cho Tae-hyun: Actually, not too long ago, on the Tesla side, we won't have a hit. Do you agree with me on this part when I'm talking about it like this?

◇ Lee Ho-geun: That's right. Because Tesla produces up to 2 million electric vehicles a year and sells 170 to 1.8 million vehicles. That's why Tesla's profit from selling an electric vehicle was analyzed two years ago. About 9750 dollars is close to 10,000 dollars. It means that you have 12 to 13 million won left from selling a car. But GM and Ford are about $4,500 and $2,200, half and half. Hyundai-Kia earns about a thousand dollars when it exports electric vehicles, which is only one-tenth of Tesla. So if companies except Tesla now sell cars at the same price, they will lose $7,500 in government subsidies, and consumers will eventually get a $7,500 discount to buy at the same price. Because of these things, even if the pie gets a little smaller, it seems like it's going to get rid of its competitors by securing a huge market share. In addition, Tesla hopes that regulations related to autonomous driving will be eased, and it is believed that these parts are tied together.

◆ Cho Tae-hyun: So, even if the overall policy is abolished to reduce the pie and slow down the growth rate of the electric vehicle market, there is nothing to lose from Tesla's point of view. This is a judgment, but the problem is that the so-called catharsis phenomenon in the electric vehicle market and the temporary decline in demand will be stronger. This kind of outlook is coming out. What do you think about this?

◇ Lee Ho-geun: That's right. I'm sure it's going to be strong. It is clear that the overall pie will be reduced temporarily. However, even if the actual pie is reduced in these areas, some major Tesla customers or those who advocate Tesla can continue to expand their market share, and the other extreme is that the Model Y has secured price competitiveness by offering discounts of more than 10 million won and 20 million won. There is a traditional statistical style that ordinary cars reduce production costs by about 30% for each increase in sales of 50,000 units. As I said earlier, selling 1.6 million to 2 million units of four models can reduce production costs much more than now, and in this case, even if sales are slightly reduced and the cash flow continues, it can be said that they have been judged to have a better competitive edge.

◆ Cho Tae-hyun: Tesla will be fine even in the midst of the casm phenomenon. I think the problem is other companies except Tesla, but I'll focus on our finished car industry and take a look. In Korea, subsidies that we receive right away are also important, but rather than this, I think we are more nervous because of investments, investments made for the future, and things like this that will affect this. How do I look at this?

◇ Lee Ho-geun: First of all, the IRA in the United States has a tax credit for investment and a production tax credit in addition to giving $7,500 to consumers with the electric vehicle tax credit you just mentioned. However, when companies in the battery and renewable sectors invest in the United States, the investment tax credit provides about 30% of the investment size of the investment company, and the production tax credit is the tax credit for each item when batteries and related companies produce and sell in the United States. Now, there is no mention of investment tax credit or production tax credit, but even if this is not mentioned and this tax credit is maintained, it can be a problem for Korean companies if the overall pie decreases and electric vehicle sales to consumers decrease. In the case of Korea, we increased investment in the United States based on the IRA and the Semiconductor Support Act in 2022. As of last year, the investment amounted to more than $2.5 billion. So it's clear that we're in a situation where we're most sensitive to any of these policy changes and the most damaging because we're eventually the most invested country in the United States.

◆ Cho Tae-hyun: Okay. I think I need to point out this part. As you said, there are some question marks in this part about whether the IRA will actually be discarded. And there are no clear guidelines in terms of investment right now, but what kind of problems can actually happen to domestic automakers if there is a change in this area?

◇Lee Ho-geun: As you said earlier, demand for electric vehicles in the U.S. will drop sharply, especially with the abolition of subsidies, which could lead to full-fledged price competition. As mentioned earlier, however, Kia Hyundai is in a difficult situation to compete with Tesla GM Ford in terms of vehicle sales revenue. Even if Tesla abolishes the subsidy, even if the overall pie is reduced, it is now making huge profits selling per vehicle, so even with that discount, the revenue will be reduced but maintained. However, if the overall pie decreases, even if it has a certain percentage of the market share, domestic companies that are unable to achieve profits in terms of economies of scale can be more difficult. Therefore, we named any factory investment in the United States or this part as an electric vehicle factory through hybrid new engine development. The policy is now changing to be able to produce a mix of various vehicles depending on market conditions.

◆ Cho Tae-hyun: Okay. Since Korea invests a lot in the United States, I can sense the atmosphere of being a little more nervous in this area. That's why I think there's also this movement. It has been reported that Hyundai has appointed a foreign CEO to the CEO position. Should I say that this is also directly related to changes in the United States?

◇ Lee Ho-geun: That's right. Now the CEO is Munoz, who joined Hyundai Motor in April 2019 and took charge of the Americas with the global CEO. However, thanks to strategic leadership, Hyundai Motor and KIA's combined share in the U.S. market exceeded 10% and improved beyond Honda. After Toyota. We are evaluating the high market share in Asian brands. In the end, it concentrates a certain strategy in the US market. This is the evaluation. In the end, there is an evaluation that it contributed to leading the electricity industry along with the increase in sales of Hyundai Motor's Genesis brand. Therefore, through this appointment, I will emphasize the provision of electrification and innovative mobility solutions along with strengthening global competitiveness. We are evaluating it as part of this strategy.

◆ Cho Tae-hyun: Okay. I've looked at the concerns of the finished car industry so far, and even if electric cars don't work with finished car makers, there are hybrids and existing internal combustion engines, so I think there's a way to detour. But what's more worrisome is the battery industry. Now that the battery industry continues to be in the red, isn't it going to be hit harder when the IRA is abolished or when the Trump administration comes in?

◇ Lee Ho-geun: That's right. Trump Risk in the domestic secondary battery industry is different from automobile companies, as I just said. In other words, demand could shrink further at a time when the plant utilization rate is falling sharply due to the electric vehicle cash. In the case of LG Ensol, the average plant utilization rate in the third quarter of this year was 59.8%, which was significantly lower than 72.9% last year.

◆ Cho Tae-hyun: Almost half of them are playing.

◇ Lee Ho-geun: That's right. In the case of SK-on, 46.2%, but in the case of last year, it was 94.9%. This has fallen to less than half, and in the end, new demand from automakers is decreasing, and competition with Chinese battery companies is intensifying, so in the end, it is quite difficult in terms of utilization rate. In fact, despite the electric vehicle cash, domestic battery companies have been increasing their investments in trillions. In the end, I told you earlier about the advanced manufacturing tax credit. In this regard, LG Ensol received tax amounts of 460 billion won, SK received 60 billion won, and Samsung SDI received 10.3 billion won in the third quarter of this year. In the end, LG Ensol and SK On are in the red except for tax credits.

◆ Cho Tae-hyun: These two companies are in the red except for tax credits, and battery-based companies are already in the red, and the problem is that this is not the only problem. There are many other bad news besides the abolition of the IRA.

◇ Lee Ho-geun: That's right. Now, there is a possibility that the mandatory electric vehicle order will be abolished. These areas are said to be concerned about slowing demand for electric vehicles and accelerating and prolonging the cash flow.

◆ Cho Tae-hyun: What is a mandatory electric vehicle order?

◇ Lee Ho-geun: Electric cars are mandatory to sell, and first of all, all automakers have to sell a certain percentage of their cars, so they have to sell zero-emission cars. If these parts are now abolished or weakened, there is a concern that the demand for electric vehicles will decrease. Another thing is that from the perspective of the United States, in the case of the Trump administration, the protection of domestic industries is very strong. As a result, Korea is one of the countries that is experiencing a lot of surpluses due to exports to the United States. In the end, the part is that they are tinkering with the tariff increase card. And now, Chinese cars with good cost-effectiveness will enter Korea again, and eventually, Korea's electric vehicle market and battery market share are a little worried. In the end, the automobile battery industry accounts for about 16% of Korea's total exports as of 2023, which is a very important potion and an important part of the industry. Concerns about these parts are intensifying.

◆ Cho Tae-hyun: You mentioned a little while ago that Chinese cars are doing well and Korea is entering the market. Looking at it globally, the No. 1 company in market share is China's BYD, beating Tesla. With the growth of Villadi continuing, it means that we will sell cars in Korea starting next year.

◇ Lee Ho-geun: That's right. In the case of market research companies, BYD is the world's No. 1 in cumulative electric vehicle sales from January to September this year. 22. It's 3%, but Tesla came in second with 11%. Of course, there is a situation here that can only be done like this.

◆ Cho Tae-hyun: That's because the domestic market is so big.

◇Lee Ho-geun: This is because the Chinese domestic market is so big, but I saw the recruitment announcement last week. Now, the official launch is expected early next year. In the case of BYD, it entered Korea in 2016 and has already been doing businesses such as electric forklifts, bus trucks, etc., but the third quarter of this year alone is an increase of about 18.9% compared to the same period last year, expanding its market share every year. I'm looking at it like this.

◆ Cho Tae-hyun: Okay. The electric vehicle and battery markets are facing considerable challenges both externally and internally. This is not just a problem in the domestic market, but the U.S. raises universal tariffs as you said. That way, Chinese electric vehicle batteries will compete more fiercely with us in foreign markets other than the U.S. market. There's a prospect like this. How do you think we should respond in this situation?

◇ Lee Ho-geun: Usually, to compare the competitiveness of a product, we compare it to resources, market, technology, and regulatory systems. However, in the case of Korea, it is not a resource-rich country and the market is not large. However, it is true that many developments have been made based on technology, but the most important thing is to set a stable battery price, which is the core of electric vehicle production, because China has so much market share in the raw material sector. So, in the case of the cathode material market, 30 out of 45 mines are Chinese companies. In the end, it is most important to stabilize the market price by securing some kind of raw material. In order to revitalize Korea's electric vehicle industry, we believe that it is necessary to maintain an active subsidy policy for the time being along with leading deregulation.

◆ Cho Tae-hyun: You mentioned the competitiveness of raw materials, but China is in control of major supply chains related to batteries. Is there any way we can do it in this situation?

◇ Lee Ho-geun: First of all, one of the reasons why we are rushing to develop all-solid-state batteries for next-generation batteries. Already in the lithium-ion battery-based secondary battery market, it is quite difficult to surpass China's market share or hegemony, and the IRA also has quite a lot of checks on China related to raw materials. There are quite a few cases where some mining companies or raw material suppliers we contracted in South America were China as the second largest shareholder. Therefore, if the current raw material purchase line is maintained, bad news from China can occur anytime, anywhere, so shouldn't we overcome this crisis through such diversity in raw material purchases?

◆ Cho Tae-hyun: Okay. Diversification of raw material supply chains is important, but I've even heard that the most important thing is technology. So far, I have looked at the variables of the electric vehicle market and the battery market with Lee Ho-geun, a professor of the Department of Future Automotive at Daedeok University. Thank you for talking today.

◇ Lee Ho-geun: Thank you for your hard work.