A Korean detour? How China's auto investments may be aimed at the U.S. market.

[NEWS ANALYSIS]

Chery Automobile's latest investment in KG Mobility is framed as a partnership to jointly pursue global exports. But Korea's access to the United States — where Chinese brands face punitive duties and connected-vehicle restrictions — makes the country an unusually valuable manufacturing base for a Chinese carmaker, a factor that some experts say is a driving force behind Chinese investments in Korean automakers.

Chery isn't the only Chinese automaker to make such a move — Geely Automobile Holdings acquired a 34.02 percent stake in Renault Korea in 2022, becoming its largest shareholder, and has since directed the company's Busan plant to produce Polestar EVs for export to North America.

Some experts warn that Chinese capital and technology are becoming further entangled with Korean automakers and Korea's auto industry risks devolving into little more than a subcontracted export base. 

Chery's unstated calculus

Chery didn’t directly call its investment in KG Mobility an attempt to enter the U.S. market, but Zhang Guibing, president of Chery International, cited tariffs and pinpointed exports as the partnership's core objective. 

"Chery's stage is the global market, and tariff treatment diverges between China and Korea in certain regions," Yin said, adding that this is one of “KG Mobility's most consequential assets.”

"Every company in the world is eyeing the U.S. market. Meeting its regulatory requirements is essential to gaining entry,” he added. 

KG Mobility recently inked an agreement with Chery Automobile to receive $75 million from the Anhui-based automaker in the form of convertible bonds. If Chery converts the bonds in full, it would receive 16.22 percent, over 39.2 million shares, of KG Mobility, becoming the Korean automaker’s second-largest shareholder.

Chinese automakers have, in practice, been locked out of the United States, as the Donald Trump administration has imposed tariffs of up to 125 percent on Chinese-made vehicles under Section 301 of the Trade Act.

KG Mobility and Chery are currently co-developing a large-size SUV code-named SE10, which they have officially stated is intended for export to overseas markets including North America.

The two companies signed a licensing agreement in October 2024 to use Chery's plug-in hybrid platform, T2X, for the SE10, the successor to KG’s Rexton SUV, with KG Mobility overseeing product planning and design. 

"Chery will lean on KG Mobility to establish itself in the Korean market in the near term, but will ultimately use it to weigh entry into global markets such as the United States," said Cho Chuel, a senior research fellow specializing in the automotive sector and Chinese industry at the Korea Institute for Industrial Economics & Trade.

"If a vehicle is manufactured in Korea, with KG Mobility's involvement and Korean-made components, it becomes difficult to classify it as a Chinese product, which raises the likelihood it could be exported to the United States."

In fact, KG Mobility and Chery have also agreed to jointly invest in overseas production and business sites and to share global manufacturing facilities, supply chains and sales networks. 

Though KG has said it has no plans to manufacture Chery vehicles on contract at its plant in Pyeongtaek, Gyeonggi, so far, Chery has already deployed a similar strategy in Europe, expanding local production to offset trade barriers.

Through a joint venture with Spain's EV Motors, Chery manufactures its Omoda, Jaecoo and Ebro models at a former Nissan plant in Barcelona.

Chery’s aggressive partnership with foreign automakers reflects a deeper vulnerability at home; Chery's domestic sales have weakened considerably, leaving the company increasingly reliant on international markets, which accounted for roughly 69.5 percent of its total sales in the first half of this year. 

Its global sales rose 7.7 percent on year to 1.36 million units, with overseas sales surging 71.5 percent to 943,817 units. Its domestic sales in China, meanwhile, plummeted 41.7 percent during the same period. 

"The Chinese market is already saturated and Chery urgently realized that the future growth will hinge heavily on global markets. And for that, the U.S. market is urgent and essential for them," said a source who has been in the domestic auto industry for over two decades. "KG Mobility lacks the resources to develop technology independently, and Chery appears intent on using Korea as a gateway to secure access to third-country markets."

A playbook written by Geely

Speculation that Korea is being positioned as a workaround destination is not without precedent, as in 2022, Hangzhou-based automaker Geely Automobile Holdings acquired a 34.02 percent stake in Renault Korea, citing "exploring overseas sales" as its rationale. 

Geely then subsequently directed the Busan plant to produce Polestar 4 EVs for export to North America, including the United States and Canada. Renault Korea, the Korean unit of France's Renault Group, owns a roughly 300,000-unit plant in Busan and hires local employees.

Polestar, though founded as an EV offshoot of Volvo Cars, is now roughly 80 percent owned by Geely. Michael Lohscheller, Polestar's CEO, visited Korea last November and said exports of Busan-built vehicles to North America were just the beginning, adding that the plant's capacity could be leveraged for other markets as well.

The U.S. Department of Commerce finalized a rule early last year barring the U.S. sales of vehicles that rely on Chinese- or Russian-made software or components in autonomous driving and connectivity systems, with the restriction phasing in beginning with 2027 models. 

Polestar has said that once U.S. sales are effectively barred starting in 2027, it plans to pivot its focus to Europe.

Also, the U.S. Senate Commerce Committee recently passed legislation that would block connected-car sales by companies in which Chinese entities hold a stake exceeding 15 percent. This threshold may help explain why Chery structured its convertible-bond stake in KG Mobility at under 20 percent. 

Is Korea becoming China's export proxy?

A deeper worry looms over these deals that Korea risks becoming little more than an export platform for foreign brands, as no Korean automaker besides Hyundai Motor has had the capital or scale to sustain independent growth.

"Ultimately, it's highly likely that Chery will acquire KG Mobility outright down the road," said Kwon Yong-ju, a professor in Kookmin University's department of automotive and transportation design. 

"KG Mobility cannot survive on its own. It doesn't have technology and lacks capital to develop technologies. Once capital and technology become this intertwined between Chery and KG, that outcome becomes difficult to avoid," he added. 

That assessment is bolstered by the scope of the collaboration already underway — Chery and KG Mobility have agreed to form joint task forces not only in automobiles but in semiconductors, robotics, steel and raw materials.

The shift toward export dependency is already visible elsewhere in Korea's auto sector, where several foreign-owned plants now rely heavily on exports to stay afloat. GM Korea, which has three plants in Korea, sold just 766 vehicles domestically in July but exported 41,353 units. That means 98.2 percent of its production went abroad. 

Renault Korea’s domestic sales totaled 1,704 vehicles in July against 1,326 exported, with exports accounting for nearly 43.8 percent of total sales.

The technology fees Korea pays to Chinese partners are also climbing rapidly. Renault Korea's payments to Geely reached 952.7 billion won ($690 million) last year, a nearly 24-fold surge from 39.9 billion won in 2023, according to data from the Financial Supervisory Service. 

KG Mobility reportedly paid Chery $84 million, or roughly 120 billion won, so far this year.

BY SARAH CHEA   [[email protected]]