Hyundai Motor, facing sluggish domestic sales, is considering the use of Chinese parts to enhance its price competitiveness. The company is expanding its sourcing options overseas to reduce costs. However, it finds itself in a dilemma as U.S. regulations on Chinese parts tighten.
According to industry sources, Hyundai has begun internal reviews regarding the additional use of Chinese parts to boost price competitiveness. This move is seen as a response to lower production costs and to counter the aggressive pricing strategies of Chinese automakers.
Cost reduction is a constant challenge in the automotive industry. Lowering parts procurement costs, which account for about half of total sales, is essential for maintaining price competitiveness. Consumers increasingly prefer vehicles that offer high performance at reasonable prices.
The starting price for the newly launched eighth-generation Avante gasoline model is 23.98 million won, an increase of 3.36 million won from the previous model. The top trim now exceeds 30 million won, prompting online reactions that the price of the 'people's car' has become excessively high.
The rise in prices is attributed to the burden of production costs, including parts and raw materials. While Hyundai aims to secure price competitiveness by reducing parts procurement costs, the situation remains challenging. According to the Financial Supervisory Service, Hyundai's total sales for the first half of this year reached 95.1542 trillion won, with parts procurement amounting to 40.4013 trillion won, or 42.5% of total sales.
The value of parts purchased from domestic suppliers was 20.3216 trillion won, down 14.8% from 23.862 trillion won during the same period last year. In contrast, the procurement of raw materials, including steel and paint, increased significantly from 2.2454 trillion won in the first half of last year to 3.0827 trillion won this year, a rise of 37.3%. Despite a 3.7% decrease in domestic production to 907,000 units, the increase in raw material procurement has heightened production cost pressures.
In response, Hyundai has recently sought cost-reduction strategies from its primary domestic suppliers, with relatively cheaper Chinese parts emerging as one option. Industry estimates suggest that Chinese automotive parts are, on average, 30% cheaper than domestic alternatives.
The South Korean automotive industry has a significant reliance on Chinese parts. According to a report released by the Bank of Korea last month, Chinese parts accounted for 47.2% of domestic automotive parts imports last year. Notably, 100% of automotive chassis imports were from China, along with 99% of body parts, 95% of air conditioning units, 91% of wheels, and 80% of airbags, indicating high dependency on Chinese supplies for certain components.
However, Hyundai faces challenges in utilizing Chinese parts indiscriminately. The United States, one of its largest export markets, has intensified scrutiny over illegal transshipments of Chinese products, as highlighted in a report on 'massive transshipment fraud' that claims Chinese goods are being illegally exported to the U.S. via over 40 countries.
Industry experts warn that if U.S. regulations on Chinese supply chains expand, costs could rise significantly for automotive parts that heavily rely on Chinese sources, such as electric motors and wiring harnesses. The imposition of tariffs on these items could lead to substantial additional costs for the domestic automotive industry.
A Hyundai official stated, "We are keeping the option of China open as one of several choices, considering price competitiveness, quality, and supply stability. However, we are focusing on supply stability rather than relying on parts from a specific country in our strategy."
* This article has been translated by AI.
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