Ministry of Environment Suddenly Delays Tiered Subsidies for Electric Vehicles... Appears to Be Mindful of Imported Cars

[Asia Economy Sejong=Reporter Dongwoo Lee] The Ministry of Environment has temporarily postponed this week's planned announcement of this year's 'Electric Vehicle Subsidy Reform Plan.' The ministry cited the need for "further consultation with stakeholders" as the reason for the delay, but some speculate that the postponement is due to industry backlash against the differential subsidy support plan for domestic and imported electric vehicles.

The Ministry of Environment announced on the afternoon of the 11th that the electric vehicle subsidy reform plan would not be submitted at the emergency economic ministers' meeting scheduled for the morning of the 12th. This came as a sudden cancellation just one day before the meeting, despite the plan having been announced for submission last week.

This year's electric vehicle subsidy reform plan reportedly includes reducing the total national subsidy cap from 7 million KRW to 6.8 million KRW, and lowering the combined cap for fuel efficiency and driving range subsidies from 6 million KRW to 5 million KRW.

Additionally, to encourage manufacturers to establish better after-sales management systems, the reform plan is said to include a measure to provide only half of the fuel efficiency and driving range subsidies to electric passenger cars from manufacturers that lack direct service centers or have incomplete maintenance history and parts management IT systems.

Considering that domestic manufacturers have better after-sales management systems, the industry speculates that the government intends to strengthen benefits for domestic electric vehicles by differentiating subsidies between domestic and imported electric vehicles through the reform plan. This has reportedly caused resistance mainly from the foreign electric vehicle import sector, which is believed to have influenced the postponement of the subsidy reform plan.

Some also express concern that if the government differentiates subsidies for imported electric vehicles while negotiating issues related to the U.S. Inflation Reduction Act (IRA), it could lose justification for improving bilateral relations. The IRA limits electric vehicle subsidies to those "final-assembled in North America." The industry expects local production in the U.S. to be feasible only by the first half of 2025, which could negatively impact exports of Korean companies such as Hyundai Motor Company, urging prompt government-to-government consultations.

Earlier, on the previous day, Second Vice Foreign Minister Do-hoon Lee, after bilateral talks with Jose Fernandez, U.S. Deputy Secretary of State for Economic Growth, Energy, and the Environment, emphasized at a brief joint press conference regarding the IRA that "we reaffirmed our position to continue joint efforts to ease discriminatory measures against our companies and to build a mutually beneficial supply chain ecosystem," citing the same concerns.

A Ministry of Environment official stated, "The process of gathering opinions is taking longer than expected due to last-minute adjustments," adding, "We will conclude consultations as soon as possible."

[Image source=Yonhap News]