The South Korean government will inject 1 trillion won (US$889.68 million) in electric vehicle (EV) research and development (R&D) to secure a future growth engine of the automotive industry. The figure is one third of the 3.16 trillion won (US$2.81 billion) that the Ministry of Trade, Industry and Energy (MOTIE) has set aside for R&D on the five new industry sectors this year. This is the first time that the government put such a large amount of policy funds in the EV area alone.
According to the Ministry of Science and ICT and the MOTIE on September 18, the EV component industry promotion project worth 970 billion won (US$862.99 million) has been declared eligible for technical feasibility analysis and chosen as a subject of pre-feasibility study. When the full-scale pre-feasibility study begins later this month, it will come to final conclusion by the end of the first half of next year. As the auto industry, one of South Korea’s key industries, has been put on red alert, the project is expected to receive final approval without any problems.
The objective of the project is to lower the price of EVs from currently over 40 million won (US$35,587) to less than 30 million won (US$26,690) and increase the driving range on a single charge of a battery from 400 kilometers to more than 600 kilometers in order to accelerate commercialization. Small and mid-size companies and government-affiliated research institutes are the target for support and they will be provided with general and individual component development support, including EV batteries.
The government is focusing on the EV R&D because the country’s traditional auto industry is shrinking. Domestic car production peaked at 4.66 million units in 2011 and then dropped over 500,000 units to 4.12 million last year. The auto industry is in the dim future this year and next year as exports to China and the Unites States have decreased, GM Korea shut down its plant in Gunsan, and the economy is caught in the mire of stagnation. Accordingly, automotive component producers are also facing a crisis.
The government has reduced individual consumption taxes on cars in July to promote consumption but it has been relatively ineffective compared to the past. After lowering individual consumption taxes in August 2015, domestic sales increased 16.3 percent the next month. However, the figures grew only 5 percent in August this year. In addition, it is urgent to come up with countermeasures to revive the domestic auto industry as domestic consumers show a clear preference for imported cars.
The government has decided to grow the EV market as an alternative to rebound the faltering auto industry. An official from the government said, “We need to focus on promoting the future car sector, including electric cars and hydrogen powered cars, in the medium and long term. The traditional auto industry sees its performance fall but environmentally friendly car and component manufacturers already show growing sales.”