Automotive Industry, Ranked 5th in Global Automobile Production...Yet Only 1.6% of Total R&D Budget

The largest trade surplus industry in the domestic trade balance (53 billion dollars). Added value of 10.7% of total manufacturing. Tax revenue of 37.7 trillion won, representing 14.7% of total tax revenue, with manufacturing employment of 330,000 people (6.9% of total employment of 1.77 million).

These figures represent the current status of Korea's automotive industry. Since 2009, the Korean automotive industry has been ranked in the top 5 globally in automobile production. It is truly a foundational sector of Korea's domestic industry.

So, how are we designing the future for such an important (?) industry? Last week's Eco-Friendly Vehicle Future Power Forum was a venue that simultaneously presented analysis and concerns about this reality.

In conclusion, industry officials spoke with one voice that falling technology competitiveness has become inevitable due to low R&D budgets (1.6% of the total) relative to the automotive industry's weight in GDP (3.2%). This means that automotive technology research and development investment compared to advanced countries is severely inadequate. The forum pointed out that due to the expansion of regional industries, core preemptive technology research budgets are actually declining.

▲Electric vehicle charging scene.

In response, participants agreed that groundbreaking increases in investment are needed to cultivate and consolidate industry-academic-research capabilities, overlapping regional business investments should be avoided, and nationwide R&D projects should be expanded.

For reference, in the United States, the automotive R&D budget is increasing, and research by domestic researchers and partners is being encouraged for cleaner and more efficient transportation. Research mainly focuses on advanced combustion, vehicle efficiency, alternative fuels, EV, and low-carbon fuel development. The ACE (Advanced Combustion Engine) Program is operating at an annual government funding level of approximately 43 billion won, with plans to double the budget in 2017. Professor Min Kyung-deok from Seoul National University evaluated it as follows: "It operates in a competitive format between company-led consortiums on a single issue, resulting in high utilization of foundational technologies and effective linkage to industrialization."

Let's take a look at Europe. Europe receives support from the HORIZON 2020 research organization comprised of 14 automotive manufacturers, with each project being operated through government or partner company funding. Europe operates the FVV research organization focused on basic internal combustion engine technology and the EUCAR research organization focused on applied technology, providing project-based government funding to private-led research organizations.

The United States and Europe Conduct Internal Combustion Engine Research Centered on Alliance Organizations

However, in contrast, Korea and Japan employ a method where individual companies invest in R&D independently. Naturally, this would result in weaker cooperation in sharing or linking project outcomes among government, companies, and academia. Japan recognized this as a problem and has currently established an inter-ministerial coordination organization (CSTI) to strengthen collaboration through cross-departmental projects. Japan has introduced a program through the SIP program to present a new vision for internal combustion engine technology with the goal of 50% thermal efficiency and 30% CO2 reduction.

Korea's R&D emphasizes technology development for regulatory compliance, taking into account the timing of environmental and safety regulations. Investment in smart cars has been expanded to accommodate strengthened advanced country safety standards, with focus on vehicle emergency braking systems, lane departure warning/maintenance assistance systems, and speed warning system development. For reference, the Ministry of Industry used 145.5 billion won in 2015 as support budget for automotive industry core R&D.

Given these circumstances, the forum emphasized that expansion of government automotive R&D is necessary considering the industry's weight. Along with the statement that R&D should be "nationwide" rather than regional, the forum stated that efforts should focus on regulatory compliance areas with high cost-effectiveness and that a long-term support strategy for securing fuel cell and battery original technologies is necessary.

Additionally, it emphasized that strengthening automotive industry competitiveness 5-10 years from now is more urgent than 20-30 years later. It argued that original technologies for engine platforms, hybrid systems, and infrastructure construction acceleration must be developed, and forward-looking consideration for fuel diversification is necessary. Particularly, it emphasized that "balanced" R&D investment is needed rather than concentrated investment in a single sector, and stressed support for original technology development R&D over product technology development. It also voiced concerns about measures to secure advanced talent supply and original technology for the future due to the ecosystem decline of universities and national research institutes in the engine sector.

Electric Vehicles, Fuel Cell Cars...It's Uncertain Which Automobile Form Will Grow
Selective Concentration Is Risky, So Let's Invest in a Balanced Way—But What's the Solution?

Synthesizing these arguments, the consensus was that existing internal combustion engine technology should achieve higher efficiency and that comprehensive investment across various fields including this should take place. While the forum's organizers consist primarily of automotive manufacturers and academia, making such arguments understandable, several questions could not be dismissed. For instance, the argument that investment should be balanced and distributed rather than selectively concentrated, the focused introduction of overseas examples of internal combustion engines, and the pessimistic stance toward regional investment projects are among them.

Of course, there has been recent talk about autonomous driving, but the truth is that it is uncertain how the automotive technology scenario will develop according to automotive technology forecasts. So far, gasoline and diesel vehicles powered primarily by internal combustion engines remain core, and it is unknown how long these vehicles will continue as mainstream. When and how EV (electric vehicles), FCEV (fuel cell vehicles), BEV (battery electric vehicles), PHEV (plug-in hybrid cars), HEV (hybrid electric vehicles), and LPG vehicles will spread and become obsolete remains unknown.

However, the argument that because it is uncertain which automobile form will develop, R&D must be conducted to prepare for all these automobile technologies, that is, the so-called selective concentration strategy, seemed to lack persuasiveness. This is because the capital available for investment is limited, and our capabilities also have boundaries, so sufficient review of this aspect should be conducted before discussing "balanced" investment. Additionally, it was unfortunate that the discussion did not first address why regional projects were necessary in the first place and why investment in them was made, given Korea's domestic context.