Tesla’s milestone gives lessons in innovation, survival
Example of ex-handset titan Nokia’s fall urges Korean carmakers to focus on EVs to avoid same fate
Tesla’s overtaking of Toyota in market value is providing a bitter lesson for Korean carmakers that conventional vehicles no longer possess the hegemony of the car industry, thus they should double their efforts to develop and distribute attractive electric vehicles (EVs) to the market for their continued survival.
Officials compared Tesla’s story to the case of Nokia, which lost its control in the global mobile phone market after failing to keep up with Apple and other smartphone makers. They said Tesla’s lead shows the global car industry is ripe for transition, and carmakers have to make the bitter choice of letting go of their legacy in building vehicles with gasoline engines.
Tesla touched a market cap of $207.2 billion, surpassing Toyota’s $201.9 billion, after its shares climbed as much as 3.5 percent during the intra-day trading. This made Tesla the world’s most valuable carmaker, surpassing Toyota which sold 30 times more cars last year than Tesla. This was interpreted as investors placing greater value on the potential of EVs than the 130year history of combustion engines.
“This inspires many car companies to remember of the case of Nokia,” a domestic industry official said. “As Nokia lost its leading status in the mobile phone market after failing to keep up with the trend of smartphones, domestic carmakers should take this as an alarming lesson that the global automotive industry is now about EVs and hydrogen fuel cell electric vehicles (FCEVs).”
Experts and industry officials say one of the biggest differences between Tesla and other carmakers is the basis of their vehicle. While conventional carmakers still rely heavily on electrifying their existing cars, Tesla is fully focusing on developing EVs.
“Complete carmakers are striving to develop platforms exclusive for EVs these days, but such an effort should have been made earlier,” said Hwang Sung-ho, a professor at Sungkyunkwan University’s Mechanical Engineering Department.
“To respond to the global transition to EVs, carmakers should have fully focused on developing EVs. But they couldn’t, because they couldn’t abandon investments, experience and other resources they have put into internal combustion vehicles.”
Hyundai Motor has the Kona Electric compact SUV, the Ioniq Electric compact sedan and the Porter II Electric mini truck as fully electrified vehicles. Both the Kona and the Porter II are electrified versions of existing vehicles. The Ioniq comes in hybrid, plug-in hybrid and full EV models.
Its affiliate Kia Motors has a similar EV portfolio.
It has the Niro-branded EV compact SUV, the Soul EV crossover and the Bongo III EV mini truck. The Soul and the Bongo III are electrified versions of existing engine vehicles, while the Niro EV comes in hybrid, plug-in hybrid and full EV models.
This shows Hyundai Motor Group’s brands still lack an EV-only vehicle platform, while its rival carmakers across the world are busy trying to come up with original EV platforms. Hyundai Motor is currently developing a new EV platform, dubbed E-GMP (Electric-Global Modular Platform) and plans to roll out a series of cars based on it.
“Though Tesla vehicles’ completeness as cars is still facing questions, the company’s approach of making an electronic device that can drive is coming as innovation,” another car industry official said. “If carmakers are trapped in their conventional idea of electrifying their vehicles, they won’t get close to the innovation Tesla is showing.”
Stringent labor relations
Industry officials said, however, this will be more difficult for Korean carmakers, given their rigid relationships with unions.
Generally, a gasoline-powered car is comprised of approximately 30,000 parts, while an EV needs 20,000 parts.
This does not necessarily mean that the workforce required for an EV is two-thirds what is needed to manufacture of cars running on fossil fuels, but experts say EVs require a smaller labor force for manufacturing as well as retraining of employees.
This is a daunting task for domestic carmakers — especially Hyundai Motor and Kia Motors — due to labor relations. The companies require unions’ agreement for changes in vehicle production lines, producing new cars, personnel relocation and other issues related to company operation.
Due to this structure, Hyundai Motor was engaged in a series of disputes with its union last year, following the company’s anticipation that 7,000 jobs will be slashed in 2025, as the company expands its manufacturing volume of eco-friendly cars while shrinking the share of gas-powered cars.
“This is one of the biggest tasks that Korean carmakers should address,” Hwang said. “To help the current workforce for internal combustion engine parts transfer to EV-related positions, retraining of those employees should come first.”
Lately, the union has also been showing a flexible stance in its relations with the management, adopting a statement that the union pledges to increasingly embrace market logic and reflect market circumstances.
“The powertrain is not the only thing that comprises a vehicle,” Hwang said. “Given conventional carmakers’ expertise and experience in components, design, safety features and other technologies needed for a vehicle, they will get back their dominance in the future, if they make a soft landing in the current transition period.”