Will Domestic Electric Vehicle Subsidies Become More Favorable...Passenger Cars Also Evaluated Based on Battery Performance

The government is pursuing a plan to provide subsidies for electric vehicles (EVs) based on battery performance and recycling value. Last year, subsidies were detailed by vehicle model to improve EV performance and build charging and after-sales infrastructure, and the government plans to expand these criteria. Industry insiders expect this to favor certain domestic manufacturers.

The Ministry of Environment recently held a briefing session for domestic automakers to explain the draft of this year's revised EV purchase subsidy plan. Although specific details were not disclosed, according to attendees, the ministry aims to finalize the subsidy revision as soon as possible, potentially enabling immediate payments starting next month.

Model Y Battery Pack Displayed at Tesla's U.S. Factory
[Photo by Yonhap News, Reuters]

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According to explanations from inside and outside the industry, the revision includes differentiating subsidy amounts based on the battery's energy density and recycling value. Until last year, this applied only to electric buses and other electric passenger vehicles. For passenger cars, subsidies were based on vehicle price and driving range per charge, without distinguishing battery performance.

The most likely approach is to differentiate government subsidies according to the cell energy density, which determines battery performance and efficiency relative to weight. The electric bus subsidy system applied last year classified batteries into four grades based on energy density, providing higher subsidies for vehicles with batteries of higher density. The Ministry of Environment explained at the time of introduction that "batteries are larger and heavier compared to other vehicles, significantly affecting vehicle load, fuel efficiency, and safety, so battery characteristics were evaluated."

If a similar method is expanded to passenger EVs, Chinese-made EVs, especially those using lithium iron phosphate (LFP) batteries, are expected to be most affected. Some domestic EVs also use LFP batteries, but most focus on EVs equipped with ternary lithium-ion batteries. The draft reportedly also includes a plan to differentiate subsidies based on the recycling value of used EV batteries.

Battery pack of Ford in the United States. Uses LFP batteries from China's CATL. [Photo by Yonhap News, Reuters]

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There is also a proposal to lower the price cap for receiving 100% of the passenger EV subsidy back to 55 million KRW. This amount was 55 million KRW in 2022 but was raised to 57 million KRW last year due to inflation and raw material price increases. The plan is to reduce it again.

Although the industry’s opinions are still being gathered and the plan is not finalized, if the subsidy system is established as drafted, Chinese-made EVs, especially Tesla, are expected to have a significant impact. Tesla imported and sold many Model Y mid-size SUVs from China last year. This year, the main model 3 supply line is also planned to shift from the U.S. to China. Both Model Y and Model 3 are known to use upgraded versions based on Chinese-made LFP batteries.

However, despite revising the electric bus subsidy system in a similar direction last year, the number of Chinese-made electric buses actually increased, leading to concerns that the actual market demand changes after the system is implemented need to be observed further.

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