"To Increase Electric Vehicle Facility Investment in the Capital Region, Local Tax Reductions Must Be Expanded" Car Industry Forum

5il Korea Automobile Industry Association Automobile Industry Forum
Urgent Need to Revitalize Domestic Investment for Building a Global Electric Vehicle Hub

There have been calls to increase investment incentives for domestic electric vehicle (EV) factories in order to maintain the competitiveness of the automotive industry, which has become a key pillar of South Korea's exports. As domestic factory productivity declines and policy incentives remain insufficient, Korean companies are also considering building factories overseas rather than at home.

On the 5th, the Korea Automobile Industry Association held an automotive industry forum under the theme "Measures to Revitalize Domestic Electrification Investment for Establishing a Global EV Hub," making these claims. Kang Nam-hoon, chairman of the Korea Automobile Industry Association, said, "As competition to secure leadership in the EV industry intensifies among rival countries, expanding domestic investment support is urgently needed," adding, "EV production facilities must be designated as national strategic technology commercialization facilities to maintain export competitiveness."

The domestic automotive industry plans to invest more than 95 trillion won over five years starting from 2022 in future vehicle sectors. Hyundai Motor Company and Kia have begun construction this year on EV-dedicated factories in Ulsan, Gwangmyeong, and Hwaseong. Although the government is providing support by including future mobility as a national strategic technology, the industry complains that investment support for production plants is still insufficient.

Compared to the United States, Europe, China, and emerging countries, which are actively attracting EV factories by offering various financial supports and geographic advantages, South Korea's efforts fall short. Cho Cheol, senior research fellow at the Korea Institute for Industrial Economics & Trade, said, "For companies, maintaining and repairing existing factories as in the past is no longer enough; new investments are necessary," adding, "If no one covers these costs, it will inevitably be difficult for companies to invest in South Korea."

Building factories in the metropolitan area results in smaller local tax reductions compared to other regions. This reduces incentives to convert metropolitan factories such as Kia’s Gwangmyeong and Hwaseong plants, Korea GM’s Incheon plant, and KG Mobility’s Pyeongtaek plant into EV-dedicated factories. Therefore, the association argues that local tax reductions should be expanded for future vehicle facility investments regardless of location. Given the scattered laws supporting the industry, there were also calls to establish a separate Future Vehicle Special Act (tentative name) and to clearly designate EV production facilities as national strategic technology commercialization facilities. Although a bill to include future vehicles as national strategic technology recently passed the National Assembly, some aspects remain unclear.

South Korea’s automobile production has declined from 4.67 million units in 2011 to about 3.46 million units in 2021. The export share of production also peaked at 70% in 2008 but dropped to 58% in 2021. This indicates a continuous decline in South Korea’s automotive productivity centered on exports. This is because, in the past, instead of investing separately in facilities when increasing production volume, the industry responded by extending operating hours. Cho added that during the paradigm shift to EVs, missing the optimal investment timing could jeopardize industrial competitiveness.

Since the automotive industry significantly impacts the national economy, failure to shift export momentum to future vehicles is expected to cause major damage to the overall economy. As of 2019, the automotive industry accounted for about 12.7% of production, 12.1% of exports, 11.5% of employment, and 9.9% of added value in South Korea’s manufacturing sector.

Kim Joo-hong, senior director of the Korea Automobile Industry Association, said, "While easing cash support requirements for foreign-invested companies, efforts to secure labor flexibility and train personnel in preparation for the future vehicle transition must also be made."

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