Raw Material Prices Rise While Subsidies Shrink... Double Burden on the Electric Vehicle Market

On the 17th, one day before the Chuseok holiday, export vehicles are waiting to be loaded at Pyeongtaek Port in Gyeonggi. Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Yoo Je-hoon] The domestic electric vehicle industry, which has been rapidly growing since the launch of the Ioniq 5, EV6, and GV60, is likely to face a double burden next year. This is due to the continued surge in raw material prices and the increasing possibility of government subsidies for eco-friendly vehicles being reduced.

According to the "Analysis of Automobile Price Increase Phenomenon" report published by the Korea Automotive Technology Institute on the 6th, international prices for common automotive materials and electric vehicle battery materials have been steadily rising since last year. For common automotive materials such as hot-rolled and cold-rolled steel sheets, the price per ton as of July reached $1,502 and $1,708 respectively, marking increases of 149% and 112% compared to January of the previous year. Magnesium and aluminum prices also rose by 146% and 49% respectively last month compared to early last year, reaching $5,211 and $2,642.

The prices of key electric vehicle battery materials such as lithium, cobalt, and nickel are also soaring. In October alone, the price of lithium per ton was 179,750 yuan, a 249% increase compared to the beginning of last year. As of last month, cobalt prices reached $32,398 per ton, up 85%. Manganese and nickel prices rose by 66% and 47%, respectively.

While the price increase in common automotive materials is largely due to production disruptions originating from China, the sharp rise in electric vehicle battery material prices is driven by the exploding demand for electric vehicles. As global automakers continue to push for electrification, demand-driven price increases follow. The Korea Automotive Technology Institute noted, "Since the cost of battery materials for electric vehicles continues to rise, despite industry efforts to reduce production costs, a sharp reduction in sales prices is unlikely in the near term."

To make matters worse, subsidies that determine electric vehicle sales volumes are also expected to be adjusted downward. According to next year’s budget plan recently passed by the National Assembly plenary session, the budget for electric vehicle (commercial and passenger) distribution and charging infrastructure construction has been set at 1.9352 trillion won, a 72% increase from the previous year. The target for electric passenger vehicle distribution has also increased by 120% to 165,000 units compared to the previous year.

The problem is that the government is considering lowering subsidy criteria while raising the electric vehicle distribution target. The Ministry of Environment is reportedly reviewing a plan to adjust the current subsidy criteria, which provide 100% subsidy for electric vehicles priced under 60 million won and 50% subsidy for those priced between 60 million and 90 million won, to 100% subsidy for vehicles under 55 million won and 50% subsidy for those priced between 55 million and 85 million won starting next year. Since local governments’ subsidies are also paid proportionally to national subsidies, this is likely to result in a reduction in per-vehicle subsidies.

The eco-friendly vehicle market, led by electric vehicles, initially relies heavily on government subsidies, which raises concerns. In fact, China, the world’s largest eco-friendly vehicle market, postponed the abolition of subsidies for new energy vehicles (NEVs) in 2019 after sales declined by 4% following subsidy adjustments.

Professor Lee Ho-geun of Daeduk University said, "If electric vehicle subsidies decrease, corresponding price adjustments will inevitably follow, which will deepen the concerns of automakers already struggling with rising raw material prices. The recent rise of strong labor unions is also a burden," adding, "Given the nature of the electric vehicle market, which still does not yield profits, domestic automakers will have to endure a transitional period for the next several years."

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