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The Korea Herald

July 26, 2024

The Boardroom

[DECODED: SAMSUNG] Samsung still retains automotive ambition

  • PUBLISHED :July 21, 2016 - 17:12
  • UPDATED :August 04, 2016 - 15:07
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[THE INVESTOR] Renault Samsung Motors is a curious name for many foreign drivers even though they may be well aware that Samsung is not making cars.

Back in 2000, right after the Asian financial crisis hit the nation hard, France’s Renault Group acquired then troubled Samsung Motor from Samsung Group. The deal price was 615 billion won ($562 million).

Despite the sell-off, Samsung Card, the credit card unit, purchased a 19.9 percent stake in the company and has maintained the share until now.

“For Renault, the Samsung brand is a good selling-point not just in Korea but also in some overseas markets. Samsung also didn’t want to let go of the pet project of chairman Lee Kun-hee completely,” said a former Renault Samsung executive on condition of anonymity. 

Samsung Motor's ad campaign for its first family-sedan SM5 in 1998 / Renault Samsung Motors blog

Currently, Renault pays about 1 percent of its operating profit as royalty fees for using the Samsung logo. The contract signed with Samsung Electronics and Samsung C&T is set to expire in 2020.

More recently, however, a growing speculation is that the carmaker could ditch the Samsung logo earlier than scheduled.

After sluggish sales for years, Renault Samsung is seeing robust sales in recent years. Considering its top-selling cars are based on Renault’s original models, industry watchers say the carmaker hopes to lure customers with that exotic appeal, removing the Korean brand from the logo.

Fueling the speculation is actually Samsung’s latest automotive push on its own. Samsung Electronics set up a separate automotive parts business division in December last year.

“In the parts business, it is crucial to have ties with diverse global carmakers. Having its name on a specific car company would not be helpful for its business expansion,” said the executive. 

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[DECODED: SAMSUNG] Behind high life, Samsung heiresses on tough road to top

Unrealized dream

Samsung’s automotive ambition started in the late 1970s during the years of late founder Lee Byung-chull. And the ambition just continued to grow after his son and a car enthusiast Lee Kun-hee took the helm.

Under the new leadership in the 1980s, Samsung started contacting with carmakers for possible partnership mostly on commercial vehicles.

Then finally in 1994, it signed a technical partnership with Japan’s Nissan Motor, launching Samsung Motor. It took another four years for it to roll out its first SM5 family sedan in 1998.

At the time, the chairman had to deal with fierce resistance both from inside and outside Samsung.

The whole automotive industry didn’t welcome the tech giant’s entry into the market. In order to soothe the opposition, Lee was forced to promise not to hire employees from other carmakers and work with their suppliers.

During the process, its investment into the business also more than tripled than initially planned, causing skepticism among Samsung executives about going ahead with the car business itself.

The market reaction was explosive to the Samsung-made car but the timing was bad. While it was struggling to fill up the mounting costs, the Korean economy was engulfed with the Asian financial crisis.

At the time, the chairman also seriously considered acquiring then bankrupt Kia Motors but failed to do so due to opposition from his close allies and investors. Then Hyundai Motor took over Kia Motors and Samsung also sold the carmaker to Renault, the strategic partner of Nissan.

Currently, about 300,000 vehicles are produced at Renault Samsung’s Busan plant that was previously owned by Samsung.

Since giving up the car business, Samsung has focused resources into nurturing electronics business, paving the way for it to become the world’s largest tech powerhouse.

“If Samsung had continued to maintain its car business, the situation would have become a lot different,” said Shin Jeong-taek in his 2015 book “The Fall of Samsung.”

Amid technological convergence ubiquitous across industries, its rivals such as Apple and Google are jumping into the car business, while the iconic electric carmaker Tesla is enjoying its own moment of the iPhone with its sleek EV sedans.

“Now when its flagship smartphone business is getting fast saturated, Samsung with its own car business could have secured a competitive edge over its rivals,” he said.

Renewed push

The Samsung patriarch was last spotted behind the wheel in 2009. He used to enjoy driving sports cars on a Samsung-owned racing track in Yongin, Gyeonggi Province. His personal garage is rumored to be filled with some hundreds of the world’s fastest and priciest cars that are still thoroughly cared by a team of top engineers. 

After that, he was never seen driving possibly due to his health conditions and enhanced vigilance.

Lee has been hospitalized since suffering a severe heart attack in May 2014. Now his only son, Samsung Electronics vice chairman Lee Jae-yong serves as de facto leader of the nation’s largest conglomerate.

The junior Lee has led the group’s key decisions over the past two years. Possibly to prepare for a pending leadership transfer, Samsung has been busy selling off less profitable business such as chemicals and defense, while spending big on nurturing new growth engine businesses such as bio similar drugs and parts for futuristic vehicles.

Even for the son, a car business is a dream that has yet been realized. And he is behind the group’s renewed automotive push.

Compared to its crosstown rival LG Electronics, Samsung was late to the auto parts industry.

While LG has worked relatively more independently and secured orders from global companies, Samsung has combined all its affiliates into its product pipeline, according to Paul Gray, principal analyst of market research firm IHS.

“Samsung has the technology and know-how, but to fit into the automotive industry they need more time,” he said. 

In 2009, its battery-making unit Samsung SDI and Germany’s parts giant Bosch set up a joint venture to produce batteries for electric vehicles. They separated in 2014, with Samsung SDI becoming the sole supplier to BMW’s electric and hybrid models.

Despite sizeable presence in the battery market, Samsung has yet to secure a firm footing in the global car market overall.

According to news reports on Aug. 3, Samsung Electronics is speculated to be in talks with Fiat Chrysler Automobiles to acquire the carmaker’s auto parts maker Magneti Marelli amid the Korean tech giant’s big push in the auto business. 

The deal could be worth more than US$3 billion, the biggest-ever acquisition for Samsung outside its home turf. 

The rumors involving Fiat, the seventh-largest carmaker globally, comes after Samsung announced a 1.92 percent stake purchase, worth 3 billion yuan (US$450 million), in China's BY, the world's largest electric car manufacturer, in July. 

Industry watchers say M&As are the most effective way to expand its presence in the automotive industry where entry barriers are still higher than in other industries. 

"Following the recent investment in BYD, a partnership with Fiat would speed up Samsung's plans to secure a fim footingin the car maket, especially since it would not be easy for SAmsung to nurture the business on its own given the high entry barriers of the automotive industry," said Lee Seung-woo, analyst at IBK Investment and Securities. 

Fueling the speculation, Samsung Electronics Vice Chairman Lee Jae-yong, the group’s heir apparent, has been a director of Fiat Chrysler’s controlling shareholder Exor SpA since 2012. 

“We do not respond to market rumors,” said a Samsung spokesperson, denying to further elaborate on the issue. 

Samsung has acquired dozens of tech start-ups, including those specialized in futuristic auto technologies, since 2014. They include: Quanery, a light detecting sensor-maker; Seeo, a lithium polymer battery maker; Vinli, a connected car system developer; and nuTonomy, a self-driving car software developer.

“While LG is partnering with Hyundai Motor, Samsung is likely to seek more partnerships overseas,” said Shin Jung-gwan, a senior analyst at KB Securities. Renault Samsung’s full-electric SM3 Z.E. also uses LG Chem batteries.

The company has already signed several deals with global carmakers such as infotainment systems to BMW and Volkswagen and higher capacity batteries for Audi’s upcoming electric model.

Its electronic parts supplying arm Samsung Electro-Mechanics is also beefing up production of automotive memory chips and camera sensors. 

By Lee Ji-yoon (jylee@heraldcorp.com)