Germany’s abrupt suspension of subsidies for electric vehicles (EVs) sold in the country is puzzling South Korea’s auto industry, which exports electric vehicles to the region. This along with France’s plan to reorganize its EV subsidies to measure carbon emissions and provide differential subsidies will adversely affect the export of EVs to the two countries by Korean carmakers.
“We are sorry for consumers who were expecting EV subsidies, but there are no more available funds to be used as EV subsidies,” a German government official said on Dec. 17 (local time). “We will only pay subsidies applied for by Dec. 16.” The German government halted the subsidy a year earlier than originally expected.
Until now, Germany has offered a 4,500-euro subsidy for any EV costing 40,000 euros (US$43,870) or less. EVs costing 40,000 to 65,000 euros have been eligible for a subsidy of 3,000 euros per car.
Earlier, the French government announced that it will implement an electric vehicle subsidy reform plan beginning from 2024. The plan will measure carbon emissions in the entire process of producing and transporting electric vehicles to create an environmental score and provide differential subsidies accordingly. As a result, most EVs produced in countries far away from France such as Korea, China and Japan will not be eligible for EV subsidies. Until now, France has offered subsidies of 5,000 to 7,000 euros per vehicle to EV buyers.
The industry has been baffled by the move as Germany and France are major EV export destinations for Korean automakers. The move will subsidize the European-made Hyundai Kona, but Kia’s Niro and Soul will be scratched off the EV subsidy list.
According to the Korea Automobile Manufacturers Association, 26,700 and 9,062 Korean electric vehicles were exported to Germany and France in 2022. Electric vehicles accounted for 36 percent of Korea’s total auto exports to Germany and 13 percent to France.
In the first ten months of this year, 39,658 and 11,746 Korean electric vehicles were sold in Germany and France, respectively. The share of the two destinations in Korea’s total auto exports jumped to 49 percent and 19 percent, respectively.
Earlier this year, China and the United Kingdom eliminated EV subsidies. The United States is the only major country that has not reduced its EV subsidies and will continue to subsidize EVs at the same level of US$7,500 each next year.
EV subsidies will also be cut in Korea beginning next year. The average subsidy for EVs in the government’s budget proposal for next year is four million won per vehicle, down from five million won this year. The subsidy for a Korean EV, which started at seven million won in 2021, has been reduced by one million won every year.
As a result, the Korean EV industry is expected to focus on launching low-cost, compact EVs that are less affected by EV subsidies for the time being. “The competition to develop low-cost compact EVs led by Tesla is related to cuts in EV subsidies,” said Kim Pil-soo, a automotive engineering professor at Daelim University. “Next year, we will see a steady stream of small EV launches that are comparable to internal combustion vehicles in terms of price.”