Amid US-China row, Tesla's growth benefits Korean suppliers

An aerial photo made with a drone shows empty employee parking lots at the Fiat Chrysler Belvidere assembly plant near Belvidere, Il., Oct. 18. EPA-Yonhap

By Kim Yoo-chul

Tesla's continuing growth in the electric vehicles (EVs) business is providing a clear rationale for why it makes sense to invest in the company's parts suppliers in Korea.

Korean companies are aiming to reap great rewards by jumping on the EV bandwagon created by Tesla, a company that outsources much of its manufacturing, much like Apple. That means the U.S. carmaker has numerous suppliers it relies on for procuring parts and materials for its EVs.

Tesla's Korean parts suppliers include LG Energy Solution, Samsung SDI, SK Innovation, L&F, Hanwha and second-tier companies. Tesla and 15 other EV makers are worth a combined $1.14 trillion, with Tesla accounting for 74 percent of the total, according to an assessment released Wednesday by Bernstein analyst Toni Sacconaghi, an experienced battery sector analyst.

Stellantis' agreement with LG and Samsung to open a 40 GWh "gigafactory" in North America is based on the two Korean companies' proven track record in their Tesla-oriented businesses, according to officials contacted by The Korea Times.

"Today's rapid growth of EVs and the sector's positive growth outlook are based on governments' shift toward supporting net-zero initiatives, but I would say Tesla was the hidden force that has pushed major carmakers toward an early retirement for conventional vehicles. The focus is more investors are justifying EV valuations and trying to find listed Korean materials and parts suppliers that have been included or will be included in Tesla's battery supply chain," a senior manager at a U.S.-based investment bank in Seoul said, adding he invested "millions of dollars" in Tesla's Korean suppliers with a hefty return ratio.

The logo of car manufacturer Tesla is seen at a dealership in London in this file photo. Reuters-Yonhap

Plus, Sacconaghi points out that 2,014 pure-play EV companies accounted for 14 percent of EV sales, showing that pure-play EV companies' market share is growing. Assuming Tesla's possible outreach toward pure EVs and its expansion into energy storage systems (ESS) in China and Europe, given proven on-time delivery, better pricing and massive volume production, Korean suppliers will benefit from a "Tesla effect" over the next few years, said the manager.

But it remains to be seen whether or not Tesla will apply the same sourcing metric pursued by Apple, as the Cupertino-based iPhone designer is better known for keeping the world's best-managed supply chains. Apple is said to have demanded high-quality products and imposed strict terms on its Korean suppliers. Plus, Apple's business is somewhat volatile; if its suppliers fail to maintain high-quality products at affordable prices, it often replaces them with other competitors.

Industry sources, however, were saying Tesla will keep its Korean parts and materials suppliers working, as the trade rivalry between China and the United States is worsening.

"It's not been confirmed, but the reason behind Stellantis' decision to pursue joint ventures with LG and Samsung is that China's battery giant CATL was excluded from its supplier list because of frosty relations between Washington and Beijing," a senior industry executive said.

"Unlike Apple's business, not many alternatives are available for Tesla or other major carmakers in terms of procuring necessary parts and materials for EVs. Amid the complicated relationship between the world's top two economies, Tesla has no option but to keep its Korean partners until U.S.-China trade relations thaw, which could happen after a few years."

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