[EXCLUSIVE] Samsung drops plan to enter electric vehicle market

Samsung Vice Chairman Lee Jae-yong attends the inauguration dinner of President Yoon Suk-yeol at a hotel in Seoul, May 10. AP-Yonhap

Compliance issues, Apple's dominance push Samsung to focus on components

By Kim Yoo-chul

Amid the burgeoning presence of electric vehicles (EV), investors and consumers are paying attention to what role EVs will play in the automotive market and their environmental effects in the foreseeable future.

Many pending technology challenges are being addressed, as battery costs are dropping and top-tier carmakers are bringing various types of EVs to market with enhanced batteries and expanded travel range. From a policy perspective, proven emission standards and the level of attractiveness ― enhanced due to government subsidies ― are luring tech firms and carmakers to join the EV frenzy.

Such inspiring signals are leading to a flurry of announcements about newer products benefiting consumers, who are facing difficulties even purchasing used EVs. A recent report released by the Environmental Defense Fund stated that at least 100 EV models will be available in the U.S. EV market by 2025.

Beyond traditional American and European car brands, including market leader Tesla, tech giant Apple is seeing steady progress of its EV push by hiring relevant experts, helping it to address issues regarding government regulations.

But at Samsung, still Apple's top rival in the smartphone segment, its proven "go-to-market strategy" won't be applied in the finished EV segment, as the Korean tech behemoth decided recently not to manufacture its own brand of EVs, as two senior executives, both of whom are directly involved in the issue, told The Korea Times.

The core reasons behind this decision are that it doesn't believe its entry into the finished EV segment will see sustainable profits, and it holds the intention to continue avoiding any possible conflicts with its top clients, amid the focus on its contract-based semiconductor foundry business, according to them.

"After thorough reviews, response and discussions with clients, top Samsung management reached a consensus that making a foray into the finished EV segment won't be the right fit both in terms of a profit standpoint and from a client management perspective," one of the sources said on condition of anonymity.

Because of the unique nature of Samsung and Apple's "frenemy" ties ― the former is also a major parts supplier to the latter ― investors' focus was on Samsung's position regarding the actual launch of a "Samsung EV."

Not mass market, client issues

By recalling Samsung's blockbuster patent litigation battle with Apple which lasted for more than a decade, in which Apple had initially sued its Korean partner for intentional infringement of iPhone design features, the executive said Samsung's goal is to provide customers with both top-notch and affordable equipment.

"Assuming that the core trajectory to improving product quality is to do away with inefficient models and cut the number of overall models, so as to only sell models with a higher level of perfection, Samsung still has a lot of work to do in addressing design-centric issues when it comes to the handling of the finished EV business. This will cost a lot and may have unguaranteed value from Samsung's standpoint," according to the source.

Unlike Samsung, Apple is basically a design company, designing the features of its flagship products while requiring parts from partners companies. Apple will not be launching mass-market EVs, as it aims to position its own EV at the luxury end of the EV market, which may command prices of $100,000 and higher, which is more expensive than the Tesla Model S.

"I would say, yes, Apple will launch its EVs only for high-end users. What it does want is to prove itself as a true content creator and leader in the global tech ecosystem by employing all the features that it can in its ecosystem. This makes sense given Apple's longtime dedication to software and design," KTB Investment & Securities analyst Lee Han-joon said, adding that Samsung's lateness in terms of sourcing premium metals like titanium should be considered as an additional cost factor.

Plus, the global EV market is already crowded with battery and parts makers maintaining partnerships with carmakers, either through establishment of joint ventures or equity purchases. But Samsung has less of a track record of aggressively jumping into already booming markets.

A Tesla electric vehicle sits in a charging station at a dealership in this file photo. AP-Yonhap

The more noticeable point is that Samsung has been relying more on client-centric businesses such as its semiconductor foundry. As seen in the Apple litigation case, another executive said Samsung is trying to avoid any conflict of interest with its clients and potential clients.

Samsung's fight with Apple was necessary, as the smartphone business was something that it could manage given its vertically integrated business structure. Back then, all Samsung teams had been ordered to move up their deadlines significantly as part of attempts to overtake Apple, according to officials and sources. This urgency hurt the best interests of Samsung clients.

Samsung Electronics is the world's top manufacturer of televisions, home appliances and memory chips. Its battery affiliate Samsung SDI sells EV batteries to BMW and plans to broaden its battery customer base throughout its joint venture with Canada-based Stellantis. Its display affiliate Samsung Display supplies displays to carmakers, and its component unit Samsung Electro-Mechanics has Tesla as one of its clients. Samsung has a vertically integrated business structure, with its own capability to manufacture finished goods and also sell components to global tech companies.

"The point is it's not necessary for Samsung to dissatisfy clients, as the smartphone business isn't as profitable as it used to be. Given the company's position and solid strength in components, having clear and effective management with clients will matter a lot. Another key lesson that Samsung learned from its Apple fight is to always have an awareness of compliance-focused management," the second source said.

"Now, Samsung acknowledges that maintaining high-level alliances and partnerships with clients will be more substantial than advancing into business segments, which could hurt the best interests of the corporate clients."

Samsung is betting more on its sustainability to boost its foundry business. Because the foundry service manufactures chips for third-party clients, keeping mutual trust is a core factor.