In the domestic automotive market, a significant deceleration in the demand for electric cars is becoming apparent. Specifically, there will also be a decrease in government subsidies for electric car purchases this year. The aversion of domestic consumers towards electric cars, which are positioned at a higher price range compared to internal combustion engine vehicles, is expected to emerge as a key factor influencing the electric car market in the upcoming months.
According to industry sources on Jan. 1, the Ministry of Environment has allocated 1.73 trillion won (US$1.32 billion) for this year’s electric car supply support budget. This marks a reduction of around 10 percent compared to the previous year’s budget of 1.92 trillion won, leading to a decrease in the subsidy amount per unit. With the combination of high interest rates and an economic downturn, market analysts are predicting an inevitable decline in demand for expensive electric cars. Signs of an overall slowdown in electric car demand are becoming evident throughout the market.
The government has already announced a reduction in electric car subsidies, with plans for annual decreases ultimately leading to discontinuation. China has already terminated electric car subsidies in 2023, and several European countries are currently in the process of reducing and ending such subsidies. The automotive industry is actively working to mitigate the impact of the cessation of electric car subsidies by focusing on the release of low-cost electric cars.
A notable trend is the growing availability of electric cars equipped with relatively inexpensive lithium iron phosphate (LFP) batteries, as opposed to the existing models that feature high-cost nickel-cobalt-manganese (NCM) batteries.
Tesla, the U.S. electric car company, equipped the Model Y, which is sold in the domestic market, with LFP batteries and lowered the selling price by 20 million won in July of last year. As a result, the company maintained the top position in terms of sales volume in the domestic electric car market, considering both domestic and imported models, from September to November of the same year.
Domestic automakers are also exploring ways to address the slowdown in demand through the release of low-cost electric cars. Kia, for instance, has equipped the compact car Ray with LFP batteries and launched it at a low price in the 20 million won range, receiving positive feedback from consumers. In November of last year, with 1,422 units registered, it climbed to the third position in domestic electric car sales.
Hyundai Motor has also announced the upcoming release of an electric car model for the compact car Casper. The outsourcing company for Casper, Gwangju Global Motors (GGM), is aiming to finalize the construction of electric car production facilities in the first half of this year, with a target for release in the second half of the year.
Kia is gearing up to launch the EV3 compact electric car and EV4 midsize sedan in the first and second halves of this year, respectively. If Kia’s plans proceed as scheduled and the new models are released, the selling price of the EV3 is expected to be in the 45 million won range, making it possible for consumers to purchase it in the latter half of the 30 million won range with subsidies.
An industry insider from the automotive sector stated, “Although electric car subsidies decrease every year, the amount is not expected to have a significant impact on the market. Considering the expected decrease in the supply price of electric car batteries according to market principles of supply and demand, it is anticipated that electric car prices will eventually align with those of internal combustion engine vehicles in the future.”