Korea mulls extending EV subsidies to first-time buyers

EV Ionic5 [Courtesy of Hyundai Motor]

The South Korean government is considering the expansion of subsidies for first-time buyers of electric vehicles in 2024, as well as for socially vulnerable and young buyers of those cars, after witnessing a downturn in the EV market for the first time in 2023.

According to industry sources on Wednesday, the Ministry of Environment held a meeting with the EV manufacturing industry on Tuesday to hear opinions from the industry and explain the 2024 government subsidy revision. Representatives from domestic and foreign automakers, including Hyundai Motor Group, reportedly attended the meeting.

Sources say that the government is considering providing additional EV subsidies to young buyers and first-time buyers, as well as buyers in socially vulnerable groups, in 2024. The government believes that additional subsidies to young and first-time EV buyers could revitalize the market that turned downward for the first time during the previous year.

According to data from the Korea Automobile & Mobility Association and the Korea Automobile Importers & Distributors Association, the number of electric cars sold in the Korean market in 2023 was 157,823 units, a decrease of about 0.1 percent compared to the year before and the first downturn in the Korean EV market.

The government is also considering whether to include battery efficiency for the first time in the EV subsidy criteria in the latest revision, likely to keep the Korean battery industry competitive against Chinese batteries. EVs with lower “energy density,” the gauge used to measure the efficiency of EV batteries, could be subject to smaller subsidies.

Industry insiders project a subsidy reduction for EVs equipped with Chinese batteries, with batteries produced by Chinese manufacturers mainly lithium-iron phosphate (LFP) batteries. These LFP batteries tend to be cheaper but have lower energy density compared to nickel-cobalt-manganese ternary batteries produced by Korean companies.

Tesla Inc.’s Model Y, an electric sports utility vehicle first launched in the domestic market in 2023, was equipped with Chinese LFP batteries, lowering the price by around 10 million won ($7,427) and resulting in the sale of more than 10,000 units in a relatively short period.

The price range eligible for 100 percent subsidies is also likely to be adjusted. Electric passenger cars are currently 100 percent subsidized if the vehicle price is below 57 million won and a vehicle priced between 57 million won and below 85 million won gets a 50 percent subsidy. The government is reportedly considering reducing the threshold for full subsidies to 55 million won, calculating that Korean automakers will benefit the most given that most imported electric cars are priced above 55 million won.

The Ministry of Environment plans to announce the year’s revised EV subsidy plan promptly, with a “scheduled administrative notice at the end of January 2024 and implementation in early February,” according to a ministry official.