KGM, the reincarnation of SsangYong Motor that once put SAIC in an awkward position, has now teamed up with Chery.

Chery's global layout has added another key piece of the puzzle.

On August 5, Chery Automobile confirmed to Times Finance that the company has indeed purchased a certain amount of convertible bonds to support the development of KG Mobility Corp (hereinafter referred to as "KGM"). At present, Chery Automobile and KGM have signed a cooperation agreement after obtaining approval from relevant government authorities, and the two parties will combine their respective advantages to develop mid-size sports SUVs.

Previous media reports stated that Chery Automobile would invest 75 million U.S. dollars in South Korean automaker KG Mobility Corp (hereinafter referred to as "KGM") through convertible bonds. If the full conversion of the bonds into equity is completed, Chery will hold approximately 10% of KGM's shares.

The two parties have a clear division of labor: Chery Automobile sells some auto parts to KGM, while KGM is responsible for local production, assembly and sales, and distributes products through its global marketing network.

It is obvious that Chery has sent a signal of advancing into the South Korean market. Several industry insiders told Times Finance that South Korea's local automotive industry chain is highly mature, and under the influence of national cultural background, consumers mostly prefer local brands, which poses considerable challenges for foreign brands. For this reason, Chery chose to "borrow resources from existing forces" to enter the market in an asset-light manner.

Lessons from the Past: KGM's Previous Partnership with SAIC Motor Ended in Failure

One highlight of this transaction is the cooperation target KGM, which is not the first time it has partnered with a Chinese automaker.

According to public information, KGM was formerly known as SsangYong Motor, which was founded in 1954 and is one of the oldest automakers in South Korea. In the early days, SsangYong Motor cooperated with Jeep to produce military off-road vehicles, and then successively reached cooperation with enterprises such as Nissan and Mercedes-Benz, accumulating certain technical experience in SUV and diesel vehicle technologies.

In 1997, SsangYong Motor was acquired by South Korea's Daewoo Group due to insolvency, and then was spun off and listed independently when Daewoo Group dissolved. Due to poor operation, SsangYong Motor eventually embarked on the path of selling equity to sustain its business.

At that time, more than a dozen enterprises including General Motors of the United States, Renault of France, Citroën, and SAIC Motor participated in the bidding. Finally, in 2004, SsangYong Motor was acquired by SAIC Motor for 500 million U.S. dollars, with the acquisition price per share 43% higher than SsangYong Motor's stock price at that time. In the following year, SAIC Motor continued to increase its holdings in SsangYong Motor and achieved absolute control with a 51.33% stake.

This acquisition was the first overseas full-vehicle controlling acquisition in the history of China's automotive industry. At that time, China's automotive industry was underdeveloped, and SAIC Motor hoped to consolidate its technical foundation through this deal, and the market also had high expectations for it.

However, the expected win-win situation did not materialize.

Zhang Xiang, a visiting professor at Huanghe University of Science and Technology, is a witness to this incident. He told Times Finance that at that time, SAIC Motor had long been in joint ventures with Volkswagen and General Motors, and its independent brands had weak technical capabilities. It hoped to quickly improve its R&D capabilities for SUV chassis and diesel powertrain through acquisitions, while introducing SsangYong's products to the domestic market for sale and building overseas manufacturing bases.

Due to continuous losses, labor disputes between the two parties gradually became prominent. In 2006, SsangYong Motor broke out a "all-out strike" that lasted for nearly 50 days. Affected by factors such as cultural differences between China and South Korea, the South Korean SsangYong labor union and local public opinion worried that SAIC Motor's entry would transfer SsangYong Motor's core technologies to China, thus affecting workers' employment, so strikes broke out repeatedly.

In 2007, SsangYong Motor achieved short-term profitability, but its local sales in South Korea declined, and the SsangYong models introduced to China had very low market acceptance, so the domestic sales channels failed to operate smoothly. Later, the global financial crisis led to rising oil prices and a sharp drop in demand for SUVs, causing SsangYong Motor to suffer huge losses. Coupled with the new SsangYong labor union's demands for salary increases after the leadership transition, the conflicts between the union and SAIC Motor intensified.

During the negotiation process, the SsangYong labor union rejected the cost-cutting measures through layoffs proposed by SAIC Motor, and South Korean banks also declared that they would no longer provide loans to SsangYong Motor before SAIC Motor provided funds. In the deadlock, SsangYong Motor filed for revival proceedings (bankruptcy protection) with the South Korean court. In accordance with South Korean bankruptcy laws, SAIC Motor's shareholder rights were substantially frozen, it lost control of the company, and could only participate in liquidation as an ordinary creditor.

Later, India's Mahindra Group took over SsangYong Motor. Even with its support, SsangYong still failed to build stable profitability. At the end of 2020, SsangYong Motor filed for corporate restructuring again, and was acquired by South Korea's KG Group in 2022, after which it was renamed KG Mobility.

Selling Vehicles in Developed Markets, While the Monopolistic Situation Is Hard to Subvert

This tortuous past has undoubtedly deepened the market's scrutiny of KGM. Why did Chery choose it as its partner?

Sorting out information from Times Finance shows that there are not many local automotive brands in South Korea. The existing mainstream local independent brands include Hyundai, Kia, Genesis and KGM, and the first three all belong to the Hyundai Kia Group. Therefore, the number of alternative partners available for Chery Automobile is very limited.

This path also has precedents. Four years ago, Geely Automobile acquired part of the equity of Renault Group's South Korean subsidiary Renault Korea Motors, and the two parties cooperated to develop new products. Geely Automobile contributed the CMA modular architecture and hybrid technology, while Renault Group and Renault Korea Motors gave full play to their advantages in styling design, user experience, sales and after-sales networks.

However, since Renault Korea Motors is a French-controlled enterprise, it lacks the foundation of a local brand, coupled with problems such as a single product matrix, it has never gained significant popularity in the South Korean market.

Regarding the reasons why leading automakers choose to enter the South Korean market, Jiang Han, a senior researcher at Pangoal Institution, said that the penetration rate of electric vehicles in South Korea is rising rapidly at present, but local automakers have a supply gap in transitional technical routes such as plug-in hybrid. Chinese automakers, with the generation gap advantages in three-electric and hybrid technologies, can accurately fill this structural gap. Therefore, leading automakers' entry into South Korea is an inevitable choice to seize the "strategic window period" of new energy transformation.

Cui Dongshu, Secretary-General of the Passenger Car Market Joint Conference under the China Automobile Dealers Association, told Times Finance that South Korea is a high-value but closed developed automotive market, with annual local sales of one million units and considerable new energy premium. However, the local market pattern is dominated by the Hyundai Kia Group, and enterprises such as KGM and Renault Korea Motors have insufficient supply of new energy products.

Chery Automobile has sensed the momentum of incremental growth. Public information shows that in October 2024, KGM announced that it had reached a strategic partnership and platform licensing agreement with Chery Automobile. Last April, the two parties officially signed an agreement, under which they will jointly develop a new generation of mid-to-large SUV product system based on Chery's global technology platform, covering traditional fuel and new energy models, and plan to complete the development in 2026.

The cooperation has been upgraded to tangible financial support this year, which also leaves room for risk control. In Cui Dongshu's view, Chery Automobile's investment in KGM in the form of convertible bonds this time focuses on technology licensing, aiming to avoid the historical lessons of controlling operation and enter the developed market at a lower cost.

"The South Korean market is very difficult to enter. It may be relatively easier to rely on the existing system." Shen Meng, Director of Chanson Capital, once lived in South Korea for a period of time. He said that South Korean consumers prefer local brands. In addition to national sentiment, the more important reason is that foreign brands lack a complete after-sales service system.

In this sense, "setting sail with a borrowed ship" is the best way. Jiang Han believes that South Korea has always been a mature market known for its pickiness. Successfully breaking into South Korea can not only endorse the brand, but also reversely verify the technical strength of Chinese automakers, and accumulate momentum for subsequent entry into high-barrier markets such as Europe and the United States.

Different from other automakers, Chery Automobile's overseas expansion journey has lasted for more than 20 years, and its overseas market layout and construction are well-established. "It is determined to sell cars in developed markets." Zhang Xiang pointed out that although developed markets have high entry thresholds, their profit margins are also relatively large, which is exactly the type of market Chery Automobile is targeting.

Data shows that in 2025, Chery Automobile's export sales reached 13.44 million units, accounting for nearly 50% of its total sales; from January to March this year, its exports to Europe exceeded 90,000 units, a year-on-year increase of 170%.

Jiang Han also pointed out that in terms of coping with tariffs and trade barriers, this model provides an excellent "policy buffer". Facing potential trade protectionism from Europe, the United States and South Korea, obtaining the "Made in Korea" identity through localized production can effectively avoid high tariffs and anti-subsidy investigations, and achieve compliant market penetration.

He emphasized that although channel empowerment can open a gap in the market, it is difficult to completely subvert the monopoly. Hyundai Kia has long occupied more than 80% of the South Korean market share. The localized models of Chinese automakers are more about seeking incremental growth in the segmented tracks of electrification and high cost performance, and their role is to act as a "variable" to break the solidified market structure, rather than achieving comprehensive replacement in the short term.

This article is from the WeChat official account "Times Finance APP" (ID: tf-app), written by Wu Dian and Lin Xinlin, and published by 36Kr with authorization.