2026 stands out as a period in which the automotive industry will grapple with economic pressures, regulatory changes, and evolving consumer expectations, while benefiting from advancements in electric vehicles, software-defined vehicles, and manufacturing technologies. Automotive manufacturers are repositioning themselves towards export and local production strategies to succeed in a competitive and rapidly changing market. While China's dominance in the automotive sector is increasing, the country has rapidly become a leading global car exporter, supported by its electric vehicle manufacturing hubs, despite slowing domestic sales.
Looking at trade barriers, tariffs (such as those between the US, China, and the EU) and trade disruptions pose risks to export momentum. In this period of consolidation, falling domestic demand and trade barriers could put pressure on smaller Chinese automakers, potentially leading to consolidation in the sector. This expectation is the prevailing market view. While global electric vehicle sales are projected to increase in 2025, we have also seen a rise in hybrid and plug-in hybrid vehicles in some geographies, driven by local regulations and tax advantages. China is expected to export more than 5.5 million vehicles in 2025, while its share of the European electric vehicle market has risen to 13.5%. A steady increase in global vehicle sales is anticipated, with figures close to 90 million units expected by the end of 2026.
In the US, reports suggest that tariffs on South Korea will be increased to 25% due to the country's slow progress in implementing the trade agreement signed last year. This increase is said to cover all goods under "reciprocal" tariffs, as well as automobiles, lumber, and pharmaceuticals. Last July, the US announced it would reduce many tariffs on South Korea to 15% in exchange for Seoul's promise of $350 billion in US investment. The agreement also provided relief for South Korean automotive companies; tariffs on automobiles and auto parts were reduced to 15%, in line with the tariffs Trump imposed on Japan and the EU. This agreement was signed late last year following Trump's visit to South Korea.
South Korea's automotive exports are projected to reach US$71.99 billion in 2025, exceeding US$70 billion, a 1.7% increase year-on-year, thanks to strong demand for electric vehicles. Strong demand for electric vehicles, which increased by 11.0% last year to US$25.77 billion, was a key factor. Automobile exports to the US fell by 13.2% to US$30.15 billion due to US tariffs. Exports to the European Union and Asia, however, showed double-digit growth last year, reaching US$8.06 billion and US$5.88 billion respectively. The number of vehicles exported in 2025 decreased by 1.7% year-on-year to 2,736,308. Automotive parts shipments decreased by 5.9% to US$21.2 billion. The number of vehicles produced in domestic factories decreased by 0.6% last year to 4,101,992, but exceeded four million for the third consecutive year. The number of vehicles sold domestically, including both domestically produced and imported vehicles, is projected to reach 1,680,110 in 2025, a 3.3% increase compared to the previous year. The agreement, which is not yet legally finalized, stipulates that tariffs applied to South Korea will be set at the same rate as countries such as the EU and Japan. South Korea has also committed to investing $350 billion in the US, with $200 billion allocated to semiconductors and nuclear energy, and $150 billion to shipbuilding in the US. The finalization of this framework agreement, which has been delayed several times, is awaited by the automotive logistics sector, which seeks stability amid changing trade dynamics.
