During a virtual meeting with Elon Musk, the head of SpaceX, Tesla and Twitter, President Yoon Suk-yeol raised the possibility that South Korea could be the home of Tesla’s next electric vehicle “gigafactory.”

A gigafactory is a lithium-ion battery and electric vehicle component center that supplies battery packs for Tesla vehicles. There are currently five gigafactories worldwide, and Musk apparently hopes to add a sixth to the Asian region to complement the one in Shanghai. 

Although Musk stopped short of promising it would be in South Korea, he did respond to Yoon’s entreaties by saying he considers Korea a “top investment” candidate and plans to make a decision by comprehensively reviewing investment conditions such as manpower, technology levels and production environment.

When asked by reporters how he planned to encourage Tesla to choose to set up a gigafactory in South Korea over other Asian countries, Yoon stated that his administration would offer “tailored” incentives.

That means that on top of South Korea’s inherent strengths — highly skilled workers and a developed automotive supply chain — Yoon may provide government assurances that companies like Tesla will not have to worry about financial, regulatory or labor hurdles present in other economies.

South Korea posesses a highly advanced supply chain and auto manufacturing sector | Image: Hyundai Motors

KOREA’S STRENGTHS

Long a vital component of its economic development, South Korea has had a robust automotive industry since the 1970s and an equally reliable automotive supply chain. As such, the ROK government has been working closely with the industry to meet the market’s evolving challenges and demands.

For instance, in collaboration with the government, Hyundai Motor Group announced it would spend $3.6 billion (5.2 trillion KRW) to electrify the local auto industry’s supply chain. The decision would help support auto part suppliers to shift toward electric vehicle production.

Further, at the beginning of November, the trade ministry along with LG Energy Solution, SK On and Samsung SDI, stated that they would invest $35 billion (50 trillion KRW) in research and manufacturing to expand their combined global market share of rechargeable batteries from 25% to 40% by 2030.

Yoon’s business-friendly administration is also actively pushing economic reforms and deregulations to modernize South Korea’s financial institutions. 

South Korea’s Financial Services Commission has revealed plans to repeal a decades-long mandatory foreign investor registration system, which has been in place since 1992. It will also renovate the country’s dividend-paying process for listed companies to resemble the U.S. system more closely.

Therefore, along with highly-skilled ROK workers, the infrastructure that Tesla needs to set up its gigafactory is already present in South Korea.

A labor union strike, Nov. 2022 | Image: CTSU

POTENTIAL PITFALLS

However, significant obstacles could derail the construction of this gigafactory from ever happening.

The first problem is Musk himself. Fairly or unfairly, Tesla’s image is intrinsically tied to that of its CEO, who is also in charge of SpaceX and Twitter. Therefore, Tesla’s ability to invest in another gigafactory depends on Musk and his numerous other projects.

Musk’s most public business deal has been his $44 billion acquisition of Twitter and his tumultuous leadership style. Furthermore, his public persona has contributed to a decline in perceptions of Tesla, especially among U.S. citizens who identify as Democrats. Musk recently reinstated Donald Trump’s Twitter account, suspended since the Jan. 6 U.S. Capitol riots.

Twitter’s severe financial strain, Tesla’s loss of prestige and the increased competition it faces mean that Musk might not be in the position to launch another expensive project.

Another serious challenge to Yoon’s hope for the gigafactory is South Korean labor unions.

In response to the Cargo Truckers Solidarity Union (CTSU) strike, South Korea’s transport ministry said it would issue an unprecedented return-to-work order to compel cement truck drivers to return to work. The order means that any worker who continues to strike will face criminal prosecution of up to three years imprisonment and a fine of up to 30 million won.

The strike, which had gone on for six days when Yoon issued the executive order, has already had a significant impact. The government says the strike costs the economy some $225 million (300 billion KRW) daily. Container imports and exports stood at 49% of normal levels at 12 South Korean ports, with three virtually closed. Cement and ready-mixed concrete are transported at 11 and 15% of normal rates, respectively. And some gas stations are already running out of gasoline and diesel.

Although the strike has already significantly impacted the ROK economy, Yoon’s return-to-work order will likely exacerbate matters. As unions risk their collective bargaining power if they give in to the order, they will likely continue to resist. And their continued resistance could result in unrest that will likely dissuade foreign investors, Tesla included, from choosing to invest in South Korea. 

Securing a Tesla gigafactory would nonetheless be a major win for Yoon Suk-yeol and likely boost his historically anemic approval ratings. But the deep financial troubles that Musk faces in his other business ventures and Yoon’s political problems at home, it is doubtful that the discussion they had will come to fruition.

Edited by Arius Derr