The automotive industry faces the challenge of responding to a new industrial structural shift toward future mobility and electrification while simultaneously sustaining its existing industrial ecosystem. A consensus has formed regarding the direction of these structural and technological changes. However, the pace and manner of change can substantially alter the impact on the industrial base, competitiveness, and employment.
The automotive industry is built around automakers tightly connected to numerous parts suppliers, making the supply chain critically important. Changes in vehicle production directly affect the broader industrial ecosystem centered on parts suppliers and employment, and whether the domestic production base is maintained is structurally linked to the stability of the parts industry.
Korea has achieved meaningful results in expanding electric vehicle adoption. However, expanded EV adoption does not necessarily mean expanded domestic production. If the share of imported EVs rises, the domestic production base could weaken, potentially leading to a contraction across the entire auto parts industry ecosystem. Therefore, policy measures that promote domestic production and investment in line with the rising EV share, and that sustain the industrial ecosystem, are urgently needed.
In the course of the electrification transition, parts suppliers bear the burden of maintaining their existing production systems while simultaneously making new investments to respond to future mobility. Compounded by demand uncertainty and intensifying global competition, business conditions for small and mid-sized parts companies could become even more challenging.
Looking at the global auto industry recently, major countries are pursuing policies that combine subsidy-driven demand support with measures to encourage domestic production. The United States has promoted North America-centered production and supply chain development through the Inflation Reduction Act (IRA), while Japan is expanding production-linked tax support through its tax incentives for the domestic production of strategic sectors. The policy approach of simultaneously expanding EV adoption and strengthening domestic production bases is gaining further momentum.
In the EV market, global competition triggered by price-competitive Chinese EVs is intensifying by the day, and timely policy support is urgently needed to respond. Major countries in particular are actively strengthening their domestic production bases and stabilizing supply chains through production subsidies and tax incentives.
Korea, by contrast, relies on a support structure centered on EV purchase subsidies. If expansion of the EV market does not translate into increased domestic production, it could simultaneously trigger a weakening of the production base and supply chain instability. Tax incentives to promote domestic EV production deserve consideration as a key tool to supplement current policies. Such tax incentives are not support measures for a particular industry alone but rather production-linked tax measures that protect the industrial ecosystem and jobs by expanding domestic production and investment in strategic industries, including EVs and core components. Production-linked tax support can stimulate corporate domestic investment and production, serving as an important policy tool that underpins the stability and sustainability of the broader industrial ecosystem, including the auto parts industry.
Now is the time to look beyond the single policy goal of expanding EV adoption and to consider the domestic production base and the industrial ecosystem together. The auto parts industry is a vital foundation of Korean manufacturing, and the more transformative the period, the greater the need for policy approaches that can stably sustain the production base and industrial ecosystem. This is not merely a short-term response but a critical task that will determine the sustainable development and growth of the national economy.
