New Electric Vehicle Subsidy Policies in the New Year... Will They Change the Market Landscape?

Subsidy '50%' for Over 60 Million Won, '0 Won' if Exceeding 90 Million Won

Tesla Model 3.

[Asia Economy Reporter Kim Ji-hee] In the new year, subsidies for electric vehicles priced over 60 million KRW will be cut in half. No subsidies will be provided for high-end vehicles priced over 90 million KRW. As the government announced this electric vehicle subsidy policy, competition among automakers to secure higher subsidies and enhance price competitiveness is expected to intensify.

According to the industry on the 4th, the Ministry of Environment announced the "2021 Electric Vehicle (Two-Wheel) Subsidy Business Subsidy Processing Guidelines Administrative Notice (Draft)" on the 30th of last month. The subsidy base amount, calculated based on driving range and energy efficiency, is up to 7 million KRW, with additional compliance subsidies and energy efficiency subsidies of up to 500,000 KRW each. The subsidies set this way will be paid differentially according to the vehicle price. Full subsidies will be given for vehicles priced at 60 million KRW or less, 50% for those priced between 60 million and 90 million KRW, and no subsidies for vehicles priced over 90 million KRW.

The introduction of the subsidy cap system is largely due to Tesla, which rapidly increased its presence last year. From January to November last year, Tesla's cumulative sales reached 11,601 units, far surpassing the Kona EV (7,888 units), the best-selling domestic electric vehicle. In particular, there were strong voices that providing subsidies of about 13 million KRW for high-priced imported electric vehicles like the Tesla Model S, which costs over 100 million KRW per unit, was unfair. According to the Korea Automobile Manufacturers Association, Tesla is estimated to have received nearly 90 billion KRW, close to half of the electric passenger car subsidies paid in the first half of last year.

Accordingly, the calculations of domestic and foreign automakers planning to release various electric vehicles this year have become more complicated. Imported cars are expected to be directly affected by the subsidy cap system.

Tesla, considered the main target of the changing subsidy policy, is also expected to face unavoidable subsidy reductions. A significant portion of Tesla sales in Korea is concentrated on the Model 3, which is priced between 55 million and 75 million KRW, hovering around the total subsidy amount and the 50% payment threshold. Unlike overseas markets where prices were adjusted according to subsidy policies, if Tesla does not lower prices domestically, its momentum in the Korean market may weaken.

Electric vehicles such as the Mercedes-Benz EQA and EQS, and BMW iX3 and iX, which are new models planned for release this year, are also unlikely to receive full subsidies. However, if the new car prices are near the 60 million or 90 million KRW thresholds, many expect imported car manufacturers to adjust prices considering the subsidies. For domestic cars, most models except for the Genesis brand are priced below 60 million KRW, so the changed policy is not expected to have a significant impact.

An industry official said, "Once this year's electric vehicle subsidy policy is finalized, imported cars with many premium models are likely to be the main targets for subsidy reductions. However, since domestic manufacturers' electric vehicles will inevitably become more expensive in the future, there will be a competitive game among the industry to price vehicles just below the subsidy cap."

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