[Square] Government's Future Car Subsidy Support Policy 'Welcomed'

Jung Manki, Chairman of the Korea Automobile Manufacturers Association

The government announced the 'Future Vehicle Expansion and Market Preemption Strategy' on the 30th of last month. According to the announcement, there was a consensus on the need to resolve issues such as insufficient demand compared to eco-friendly vehicle distribution targets, delays in the launch of various future vehicle models including commercial vehicles, and delays in the parts industry's transition to future vehicles, which led to the formulation of this strategy.

This plan includes various measures to eliminate difficulties such as expanding charging and parking infrastructure, supporting the securing of price competitiveness of electric-powered vehicles equal to internal combustion engine vehicles, expanding autonomous driving infrastructure and institutional innovation, and transitioning parts companies to the future vehicle ecosystem.

In particular, regarding electrified vehicles, the strategy stands out with plans to create demand and build charging infrastructure to achieve the 2025 targets of 1.13 million electric vehicles and 200,000 hydrogen vehicles, as well as strategies for the commercialization of Level 3 autonomous vehicles in 2022 and Level 4 in 2024.

The plan to convert 1,000 parts companies into future vehicle parts companies is also noteworthy. Considering the global growth trend of the future vehicle market and the rise of China, this measure seems somewhat delayed. The eco-friendly vehicle market was not significantly contracted despite the spread of the novel coronavirus disease (COVID-19) this year. Global automobile market sales decreased by 28% until June, but the electric vehicle and plug-in hybrid electric vehicle (PHEV) markets only decreased by 14%. Especially in Europe, while the overall market shrank by 39.5%, the electric vehicle market showed a 60.8% increase.

The future vehicle industry is currently in the early stage of market formation, and considering the insufficient preparation across the entire parts industry as well as finished vehicle manufacturers, the government's role appears crucial. Above all, until market functions operate smoothly, it is essential to continuously provide incentives such as subsidies rather than regulations. It is necessary to refer to the case of China, where the electric vehicle market immediately fell into recession after the government reduced subsidies and switched to mandatory eco-friendly vehicle sales. In this regard, the government's continuous subsidy support policy is welcome. However, consideration for low-priced vehicles rather than high-priced ones seems necessary. Government subsidies can be justified as a means to respond to climate change, and subsidies for low-priced vehicles have a significant effect on lowering vehicle prices, thereby relatively greatly influencing market demand expansion.

The impact on the domestic industry must also be considered. The competitiveness of domestically produced eco-friendly vehicles must improve through industrial development for the smooth expansion of domestic eco-friendly vehicle distribution. Otherwise, dependence on imported vehicles becomes inevitable. This not only affects jobs but also means that eco-friendly vehicle distribution is controlled by foreign companies, which could ultimately threaten our environmental improvement. This suggests the need to approach environmental improvement from a mid- to long-term perspective.

The future vehicle transition policy for parts companies also needs to be implemented meticulously. According to a survey by the Korea Automobile Industry Association, only 17.8% of companies that have transitioned to future vehicle parts are profitable, and most companies bear the costs of prototypes and facility investments, experiencing difficulties in financing. It is fortunate that this strategy includes the establishment of new R&D for business restructuring and the creation of a business restructuring support fund in this regard.

However, attention should be paid to the fact that many parts companies hesitate to transition to future vehicles due to lack of information. This does not mean that all 9,000 parts companies must ultimately convert into future vehicle companies. The attitude of trying first is important, and special attention seems necessary. It is also worth considering forming a pool of expert personnel to provide consulting.

The future vehicle era is difficult to achieve through the efforts of any single group alone. The automobile industry is a system industry composed of numerous companies, making this even more true. We look forward to continuous communication and cooperation between finished vehicle manufacturers and parts companies, as well as between the government and the private sector for mutual growth and coexistence.

This content was produced with the assistance of AI translation services.