[Electric Vehicle Hegemony War] Rival Countries Pour Subsidies... Korea Alone Reduces Them

This Year’s Subsidies Cut by 1.5 to 3 Million Won
Competitors Actively Use Subsidies
Increasing Preferential Benefits for Domestic Electric Vehicles

[Asia Economy Reporter Sung Kiho] While major countries such as China and Japan are increasing government subsidies to foster their domestic electric vehicle (EV) industries, South Korea is reducing subsidies this year, raising concerns within the industry. Although the number of new EV models launched this year has significantly increased, the subsidy amount per vehicle has drastically shrunk compared to last year. There are concerns that the reduction in subsidies could not only shrink domestic demand but also undermine global competitiveness.

According to the automotive industry on the 21st, consumers purchasing EVs this year will receive about 1.5 to 3 million KRW less in subsidies compared to last year. EV subsidies combine national government funds and local government subsidies. According to the Ministry of Environment’s “2022 Electric Vehicle Subsidy Processing Guideline Revision,” the maximum national subsidy per electric passenger car has been lowered from 8 million KRW last year to 7 million KRW this year. The full subsidy eligibility price cap of 55 million KRW has also been reduced by 5 million KRW compared to last year.

There is also a wide disparity in EV subsidy support among local governments. Seoul, which provides one of the lowest subsidies nationwide along with Sejong City, reduced its maximum subsidy from 4 million KRW last year to 2 million KRW. When purchasing an electric passenger car in Seoul (including national subsidies totaling 9 million KRW), buyers pay up to 6.5 million KRW more than in Jeonnam’s Naju, Gokseong, Jangheung, Gangjin, and Jangseong counties, where the highest subsidies are available (including national subsidies totaling 15.5 million KRW). Last year, Dangjin and Seosan cities in Chungnam province provided the highest subsidies nationwide, up to 18 million KRW.

The government’s reason for reducing EV subsidies is the judgment that the domestic EV market has stabilized. Additionally, with a limited budget and rapidly increasing EV adoption, the government aims to spread benefits to more consumers by adjusting subsidy amounts.

However, competing countries like China and Japan are actively using subsidies to expand their EV markets. According to the Korea Automotive Technology Institute, China exempts vehicles equipped with battery-as-a-service (BaaS) technology, promoted by the government, from the usual subsidy price criteria. China also includes extended-range electric vehicles (EREVs), primarily produced by domestic companies, as eligible for EV subsidies. Considering that many countries do not subsidize EREVs, this is interpreted as a measure to promote domestic EVs.

Japan provides additional subsidies for EVs equipped with external power supply functions that can supply emergency power during disasters and offers preferential benefits for domestically produced EVs. To protect its domestic industry, the subsidy cap per vehicle for Japanese EVs capable of emergency power supply is set about 200,000 yen higher than for foreign EVs.

Germany also provides more subsidies for plug-in hybrid vehicles with internal combustion engines compared to other European countries to protect its domestic internal combustion engine technology. The maximum EV subsidy payment period has been extended until 2025, when domestic EV sales are expected to be fully activated.

The industry points out that competing countries are using subsidies as a weapon to protect their domestic industries and that South Korea needs a strategic approach as well.

Lee Hojung, Senior Researcher at the Korea Automotive Technology Institute’s Research Strategy Headquarters, emphasized, “Like China, Japan, and Germany, South Korea should continuously seek reasonable policies that utilize EV subsidies to enhance the practical benefits of domestic companies and promote innovation in EV-related technologies.” He added, “Although international regulations make it difficult to explicitly discriminate against products from specific countries, subsidy policies should be designed considering the characteristics of domestically produced finished vehicles to protect the domestic industry.”

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