Korea, US to Launch Counterattack on IRA

Government to Favor Domestic Cars in Next Year's Electric Vehicle Subsidies
Import Car Companies Likely to Face Disadvantages

[Image source=Yonhap News]

[Asia Economy Reporter Yoo Hyun-seok] The government is reportedly setting next year's electric vehicle (EV) subsidy eligibility criteria in a way that favors domestically produced vehicles. Meanwhile, the automotive and battery industries are showing signs of slowing down investments in U.S. production facilities, creating a stance of resistance against the U.S.-centered Inflation Reduction Act (IRA).

According to the automotive industry on the 27th, the government recently held an oral briefing for automakers regarding next year's EV subsidies. The briefing reportedly covered the scale and conditions of the subsidies for the coming year.

First, the EV subsidy, which this year provided up to 7 million KRW per vehicle, is set to be slightly reduced. Additionally, a new condition regarding the operation of directly managed after-sales service (AS) centers capable of EV repairs is expected to be included. The government is reportedly considering cutting up to 50% of the maximum 5 million KRW subsidy allocated for electricity costs and driving range for EVs from manufacturers without AS centers. This would inevitably put imported car companies at a disadvantage in EV sales compared to domestic automakers, as they tend to have fewer AS centers.

An industry insider explained, "There are some adjustments to the total subsidy amount, and additional content related to domestic maintenance infrastructure has been added. It seems the regulations are being shaped in a way that favors domestic cars."

This move is interpreted as a response to the Inflation Reduction Act and domestic public opinion. While the U.S. is promoting its domestic industry through the IRA, criticism has arisen domestically that subsidies are being given equally to both domestic and imported EVs, thereby benefiting foreign companies.

Companies are also expressing concerns and slowing down their U.S. market entry plans, which had been promoted in response to the IRA.

Robert Hood, Vice President in charge of government affairs at Hyundai Motor Company, stated that if the damage from the IRA increases, the economic feasibility of investing in the electric vehicle plant in Georgia, USA, may need to be reconsidered. In October, Hyundai Motor Group held a groundbreaking ceremony for its dedicated EV plant, Hyundai Motor Group Meta Plant America (HMGMA), in Bryan County, Georgia, in the southern U.S. HMGMA is planned to be built with an annual production capacity of 300,000 electric vehicles.

He said, "If we receive incentives from Georgia, where the plant is located, but fail to meet employment and production targets, penalties will be imposed. If the IRA continues to harm our growth, we will have no choice but to seriously evaluate where we should go." He also added, "Clearly, Mexico is much cheaper in terms of labor and production costs. Whether the company will reconsider that possibility remains to be seen."

Meanwhile, battery companies that have aggressively invested in the U.S. are also considering slowing down some investments. This is due to difficulties in financing amid economic recession and global interest rate hikes. LG Energy Solution announced in March that it would invest 1.7 trillion KRW to build a new cylindrical battery plant with an annual capacity of 11 GWh in Queen Creek, Arizona. However, since announcing a full review of the plan in June, there has been no progress for over six months.

SK On recently faced difficulties in raising external funds during a 2.8 trillion KRW rights offering, relying mostly on its parent company for financing. The investment funds are planned to be used to secure production capacity overseas, including in the U.S., but the harder it becomes to secure capital, the more investments may be delayed.

However, the industry explains that such moves by the government and companies could backfire, so efforts should proceed in a way that appropriately protects the domestic industry. An industry insider said, "Since the actions of the government and companies could potentially conflict with future Free Trade Agreements (FTAs), it is necessary to carefully observe the situation while proceeding."

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