Korean carmakers and car importers are in a flurry of activity as the Korean Ministry of Environment laid out a plan on Feb. 6 to change subsidies for electric vehicles (EVs) in 2024. According to the revised plan, Hyundai and Kia will remain at the same level, while mid-sized Korean-based carmakers’ and imported EVs that mainly use lithium-iron phosphate (LFP) batteries will see their subsidies significantly cut.
Hyundai and Kia account for more than 70 percent of car sales in Korea. Their EVs are expected to receive subsidies at a level similar to those in previous years. This is because most of their EVs are powered by nickel-cobalt-manganese (NCM) batteries and have mileage of more than 400 kilometers on a single charge. Their aftercare coefficient that evaluates after-sales service centers and fast charging requirements all satisfies rules set by the Korean government. As a result, the IONIQ 6, which can run more than 500 kilometers on a single charge, is expected to receive the full 6.5 million won (US$4,899) in EV subsidies from the Korean government this year.
Kia’s Ray EV and Casper Electric, which will be released later in the year, also use LFP batteries, but are classified as light vehicles, so they will reportedly face small cuts in subsidies for them. Although the subsidy threshold has been lowered from less than 57 million won to less than 55 million won, Kia is expected to lower its prices accordingly.
However, experts predict that some subsidy cuts will be inevitable for the remaining mid-sized automakers in Korea, except Hyundai and Kia. In particular, in the case of KG Mobility, its flagship EVs such as the Torres EVX are all loaded with LFP batteries from Chinese manufacturers. “It is a contradictory policy for the government to reduce subsidies for EVs with LFP batteries while calling for the diffusion of EVs to achieve carbon neutrality,” said an official of a mid-sized automaker in Korea.
Car importers in Korea are also on edge. Many experts say that Tesla will be the hardest-hit EV brand. Tesla sold 16,461 units of EVs in the Korean market last year, making it one of the top five imported car brand in Korea. The sales figure was Tesla’s second highest annual sales volume since 17,828 units in 2021 and a 13 percent year-on-year increase. This performance was driven by the Chinese-made Tesla Model Y rear wheel drive (RWD) model, which began full-scale sales in Korea in the second half of last year.
The Model Y RWD rolls out with Chinese CATL LFP batteries at Tesla’s Shanghai factory, which significantly lowered its price. The price cut helped boost Model Y RWD sales. However, if this year’s subsidy reform is implemented as originally proposed, the subsidy for the Model Y RWD will plummet from 2023. In addition, the Korean Ministry of Environment has introduced a new battery safety subsidy in 2024 to subsidize vehicles with on-board diagnostics (OBD) devices, but unlike other Korean and imported EVs, only Tesla’s EVs reportedly do not have such devices.
Companies making and selling relatively expensive EV models such as Mercedes-Benz and BMW are likely to be less affected.
However, mid- to low-priced imported EVs that received subsidies last year because they fell under the 100 percent subsidy threshold of 5,700,000 won will see their actual purchase prices rise. Therefore, these companies are expected to lower their prices to less than 55 million won to make their EVs eligible for subsidies.