[Electric Vehicle Subsidies, Is This Okay?] Wavering at 3 Million Won... Looking Back at Past Cases

High Price and Lack of Charging Infrastructure
Sales Plummet After 3 Million Won Cut
Amounts Vary Greatly by Local Governments
Effectiveness and System Itself Also Controversial

[Asia Economy Reporter Choi Daeyeol] The electric vehicle (EV) purchase subsidy, which was 15 million KRW per vehicle in 2015, was reduced to 12 million KRW the following year. Correspondingly, sales volume sharply declined. Eventually, from the second half of the same year, the subsidy was increased again by 2 million KRW to 14 million KRW.

Since the early days of EV distribution, subsidies have been regarded as the most direct and certain means to expand adoption. This is due to the high vehicle prices and insufficient charging infrastructure. EV subsidies are planned on an annual basis, and sales tend to plummet at the beginning of the year when the support scale is not yet confirmed or at the end of the year when subsidies run out, for the same reasons.

Although the per-vehicle subsidy amount has decreased compared to the past, when combined with local government subsidies, it still exceeds around 10 million KRW, so it is said that almost no one refuses to buy an EV without these subsidies.

The situation overseas is similar. According to data compiled by Lee Seung-moon, a research fellow at the Korea Energy Economics Institute, countries that previously implemented EV subsidy programs such as Norway, the Netherlands, and France took about 1 to 1.5 years for EVs to account for 0.5% of new car sales. In contrast, Germany, which did not introduce subsidies early on, took more than three years to reach 0.5%.

Tesla

South Korea’s EV subsidy policy initially operated by providing the same amount per vehicle across broad categories such as passenger cars, cargo vehicles, and buses. From 2018, subsidies were differentiated by vehicle type, reflecting battery capacity, energy efficiency, and driving range. Since last year, subsidies have been provided differently based on vehicle price. Last year, 100%, 50%, and 0% subsidies were given based on thresholds of 60 million KRW and 90 million KRW, respectively. This year, these thresholds were lowered to 55 million KRW and 85 million KRW.

According to this standard, Tesla lowered the price of the Model Y, one of last year’s popular models, to 59.99 million KRW. Tesla soon after discontinued sales of this model in Korea. The recently enacted U.S. Inflation Reduction Act (IRA) also provides tax credits only for vehicles priced below $55,000 (sedans) and $80,000 (trucks and SUVs). The IRA further differentiates based on the buyer’s income level.

While the subsidy system has contributed to increasing EV adoption in a short period, debates have continued from the early days about its effectiveness and whether the system itself is appropriate. There have been ongoing criticisms that EVs cannot be considered truly eco-friendly transportation given that a significant portion of current electricity production relies on fossil fuels. This is why the Korean and Japanese governments are advocating for the introduction of life-cycle carbon emission guidelines by major power sources.

Electric Vehicle Geometry A in Chinese Geography

According to the International Energy Agency (IEA), which calculated greenhouse gas emissions based on a full vehicle life-cycle assessment, high-capacity (80 kWh) EVs are estimated to emit more than hybrid vehicles. Additionally, the differing subsidy capacities among local governments remain an annual issue. In reality, EV subsidy amounts vary greatly by local government. For example, in Gyeongbuk Ulleung-gun and Sejong City, subsidies for the same EV can differ by up to twice as much.

Experts also point out the need to address issues such as the possibility of budget non-utilization due to manufacturer delivery backlogs, and the fact that unlike the U.S. and China, the subsidies have not significantly contributed to the development of the domestic automobile industry.