US excludes 'Korean electric cars' from subsidies... "Let's also cut subsidies for imports"

Impact on Korean Electric Vehicle Industry Due to IRA Implementation
US Electric Vehicles Receive Over Half of Import Car Subsidies in First Half of This Year
China Also Provides Subsidies for Imported Cars Domestically Despite 'Import Car Discrimination'

There are calls to reform the electric vehicle subsidy system in South Korea following the United States' Inflation Reduction Act (IRA). The photo shows vehicles sold by Tesla displayed at the Tesla Store in Gangnam-gu, Seoul.
[Image source=Yonhap News]

[Asia Economy Reporter Park Hyun-joo] As Korean-made electric vehicles (EVs) are excluded from the U.S. electric vehicle subsidy program, voices are rising domestically to reform the subsidy system. Just as the U.S. cut subsidies for Korean EVs to protect its own EV industry, there are calls to apply "reciprocity" by eliminating or reducing subsidies for imported EVs such as Tesla in Korea.

Earlier, on the 16th, U.S. President Joe Biden signed the Inflation Reduction Act (IRA), which limits tax credits for EV buyers to those purchasing vehicles that are finally assembled in North America. To qualify for subsidies, EVs must be produced with a manufacturing base in the U.S., Canada, or Mexico.

As a result, the Korean EV industry is expected to take a direct hit. Currently, all EVs sold by Hyundai Motor Group in the U.S. are manufactured in Korea and exported, thus excluded from subsidy eligibility, whereas U.S.-made EVs can maintain price competitiveness thanks to subsidies even if prices rise. Hyundai Motor Group plans to establish a dedicated EV factory in Georgia, U.S., but the completion is expected no earlier than the second half of 2024. For the next 2-3 years before completion, Hyundai will likely compete with U.S.-made EVs without subsidy benefits.

Given this situation, there is growing demand domestically to reform the EV subsidy system. To foster the domestic EV industry, it is argued that differential subsidies should be applied to imported EVs. In particular, there are demands to apply reciprocity by excluding U.S.-made EVs from subsidy eligibility, just as the U.S. excludes Korean EVs.

Currently, U.S.-made EV companies receive more than half of the subsidies for imported EVs. According to the Korea Automobile Manufacturers Association, the government paid 82.25 billion KRW in subsidies to imported EV companies in the first half of this year, of which more than half, 44.77 billion KRW, went to U.S.-made EV companies. Tesla alone received 44.19 billion KRW in subsidies.

China also restricts subsidies for imported EVs, but Korea provides subsidies for Chinese-made electric passenger cars. Korea’s EV subsidy system does not distinguish between domestic and imported vehicles and provides subsidies based on the base model sales price: 100% subsidy for vehicles under 55 million KRW and 50% subsidy for those priced between 55 million and 85 million KRW. In the first half of this year, Chinese EV companies received subsidies amounting to 15.16 billion KRW.

Meanwhile, a joint delegation formed by the Korean government will visit key U.S. government agencies and Congress, including the U.S. Trade Representative (USTR), Treasury Department, and Commerce Department, from the 29th to 31st (local time) to convey Korea’s position and concerns regarding the U.S. EV subsidy system and discuss future response measures. The delegation consists of Ahn Sung-il, Director General of the New Trade Order Strategy Office at the Ministry of Trade, Industry and Energy; Son Woong-gi, Head of the Trade Issues Task Force at the Ministry of Economy and Finance; and Lee Mi-yeon, Director of the Bilateral Economic Diplomacy Bureau at the Ministry of Foreign Affairs.

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