Electric Cars Growing Rapidly... Subsidy Shortage Crisis Looms

Target of 100,000 units... Currently about 40,000 units available
Ioniq alone exceeds 40,000 units... Supply speed can't keep up

[Asia Economy reporters Ki-min Lee and Je-hoon Yoo] The government is struggling to keep pace with the rapid growth of the domestic electric vehicle (EV) market, raising the likelihood of the worst subsidy shortage this year. This is because the subsidies allocated by the government this year only cover about 43% of the targeted number of vehicles, approximately 43,000 units. In addition to subsidies, conflicts surrounding eco-friendly vehicles, including tax systems and charger expansion, are intensifying, prompting calls for the government to accelerate institutional improvements.

According to the Ministry of Environment and the Korea Environment Corporation on the 9th, the total number of EV subsidies (passenger vehicles) available nationwide from local governments as of the previous day stands at 43,744 units. This figure falls short of even half of the government's EV deployment target of 100,000 units (excluding two-wheelers) for this year.

On the other hand, explosive growth is expected in the domestic EV market this year. Hyundai Motor's dedicated EV Ioniq 5, launched on the 25th of last month, reportedly has already surpassed 40,000 pre-orders. Additionally, tens of thousands of reservations are expected for Kia's dedicated EV EV6 and Genesis's EV GV60 (project name JW), both scheduled for release in the second half of the year. When combined with reservation volumes from other manufacturers such as Tesla, GM Korea, and Renault Samsung, the number of EV contracts this year is projected to exceed 100,000 units by a wide margin.

Despite the popularity of EVs, the government's available subsidy volume is less than half of the demand, leading the automotive industry to anticipate an inevitable subsidy shortage in the second half of the year. EV subsidies are distributed on a first-come, first-served basis, and once funds are exhausted, customer complaints about delayed or canceled vehicle purchases are expected to surge, while automakers may suffer losses from unsold vehicles. Professor Pil-soo Kim of Daelim University's Department of Automotive Studies pointed out, "With many new models launching this year, subsidies are likely to run out quickly," adding, "There could be a mismatch where cars are available but subsidies have been cut off."

Experts argue that the government must also accelerate tax reforms in preparation for the expansion of the EV market. As the automotive market rapidly shifts from internal combustion engine vehicles to eco-friendly vehicles, the government is criticized for neglecting tax reforms. In the short term, there is a call for the 'simplification' of the 12-step automobile-related tax system, including quasi-taxes. Outdated tax systems such as mandatory bond purchase obligations and individual consumption tax are cited as examples.

In the mid to long term, the need for tax reform centered on internal combustion engine vehicles is also raised. For example, the local automobile tax is based on engine displacement (cc), which measures the amount of fuel combustion in the engine, and does not apply to electric vehicles without engines. At a forum hosted by the Korea Industrial Alliance Forum (KIAF) last month, proposals were made to shift the tax base from displacement and price to carbon dioxide (CO2) emissions (for internal combustion vehicles) and weight (for heavy vehicles and EVs) to promote eco-friendly vehicle deployment after 2025.

Jung Man-ki, president of the Korea Automobile Manufacturers Association, stated, "Currently, EVs have not yet achieved price competitiveness compared to internal combustion vehicles, and automakers have entered the market at this stage. Until EV competitiveness is secured, support measures such as subsidies and tax benefits must continue," adding, "Discussions on automobile-related tax reforms are also necessary."

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