[Electric Vehicle Slump] "Have All Buyers Purchased?"... Sales Growth Rate Plummets

(Part 1) Electric Vehicle Subsidy Reduction and Market Impact
Sales Increase but Growth Rate Slows
Subsidy Reduction and Elimination Mainly Affect Korea and China
"High Car Prices Lead to Sensitive Subsidy Reactions"
Analysis Suggests Early Adopters Have Already Purchased

Editor's NoteAs global electric vehicle (EV) sales surpass 10% of total vehicle production, governments worldwide are reducing incentives such as subsidies and tax benefits for eco-friendly vehicles. With government support shrinking, the automotive industry is facing a challenging period in the EV market. While manufacturers have succeeded in expanding the EV base by leveraging government subsidies, they have yet to achieve profitability. Most companies do not make profits from selling EVs. Until a breakthrough technology enables the emergence of 'half-price EVs,' making money from EVs remains difficult. This article examines the current state of the EV market amid a stagnation in eco-friendly vehicle adoption and introduces global policy changes and industry responses.

The global growth rate of electric vehicle sales has slowed down. Although the number of units sold continues to rise, the rate of increase has decelerated. This is attributed to major countries reducing or eliminating EV purchase subsidies.

On the 7th, this publication, in collaboration with the Korea Automobile Mobility Industry Association (KAMA), analyzed EV sales and subsidy systems in key countries. The analysis revealed that the global EV sales growth rate has steadily declined over the past three years. The global EV sales growth rates were 116% in 2021, 61% in 2022, and 41% in the first half of this year.

Fortunately, the absolute number of EVs sold has steadily increased from 4.78 million units in 2021 to 8.02 million units last year. In the first half of this year, 4.34 million units were sold. However, market research firms are lowering their previous forecasts. They concluded that the explosive growth seen in the past two to three years is unlikely to recur. Global market agency EVVolumes has revised its forecast for global eco-friendly vehicle sales this year from 14.3 million units to 13.9 million units.

The trend is similar when looking at individual countries. According to MarkLines data, among the top 10 countries with the highest EV sales in the first half of this year, seven countries (China, the United States, the United Kingdom, Korea, Norway, Sweden, and Japan) experienced a decline in sales growth rates compared to the previous year. Among these, Korea showed the steepest decline. In Korea, 75,000 EVs were sold in the first half of this year. Although this is an increase from 61,000 units in the first half of last year, the growth rate dropped sharply to 23% from 118% the previous year. Next is China, where the growth rate fell from 109% to 32%. The United States, the third-largest market after China, also shows a slowdown in sales growth from 68% to 54%.

This slowdown in sales is closely linked to changes in EV purchase subsidy programs. Governments that introduced subsidies to promote adoption are now reducing or abolishing them. In 2020, the maximum subsidy an individual could receive in Korea (based on national funds) was 8.2 million KRW. However, this year, a new vehicle price criterion was introduced (full subsidy only for vehicles priced below 57 million KRW), and the maximum subsidy was reduced to 6.8 million KRW.

China, which increased EV adoption through government-led subsidies, started its subsidy policy in 2009 and invested about 30 trillion KRW over 12 years. Until three years ago, the maximum subsidy an individual could receive in China was 22,500 yuan (approximately 4.09 million KRW). The subsidy system gradually shifted to a differentiated approach based on sales price and driving range, and this year, subsidies were completely abolished. As the Chinese EV market growth slows, local governments such as Shanghai and Shanxi Province are implementing support policies (e.g., acquisition tax exemptions) to stimulate demand again.

Nordic countries, where the EV market has matured, are also moving toward eliminating subsidies. The share of EVs among new vehicle registrations in Norway surpassed 50% in 2020 and rose to 80% last year. Recently, the Norwegian government has reduced tax credit benefits for EV buyers and started imposing weight-based taxes instead. Sweden also abolished its purchase subsidy of 50,000 SEK (approximately 6.2 million KRW) at the end of last year.

[Image source=Yonhap News]

Germany provided subsidies of up to 6,000 euros (about 8.5 million KRW) for EV buyers purchasing vehicles priced below 40,000 euros (about 56 million KRW) until last year. This year, the subsidy amount was reduced to 4,500 euros (about 6.3 million KRW) per vehicle. Germany plans to gradually reduce subsidies starting next year and completely abolish the program by 2026.

Conversely, some countries are only now introducing subsidy programs amid slowing sales growth. The United States, which previously had no EV subsidy program, began offering tax credits of up to $7,500 (approximately 9.81 million KRW) from April this year through 2032.

Consumers respond sensitively to subsidies. The secretariat of the eco-friendly EV exhibition ‘EV Trend Korea’ conducted a survey of 2,172 Korean adults. When asked about considerations when purchasing an EV, 501 respondents (24%) cited vehicle price, and 367 respondents (17%) cited purchase subsidies as the most important factors. The secretariat analyzed that this is due to the introduction of a vehicle price bracket (57 million KRW) eligible for national subsidies.

The automotive industry also analyzes that the consumption stagnation appeared earlier than expected because early adopters have already purchased EVs, and the market is yet to transition to the mainstream. According to the technology adoption lifecycle theory, the proportion of ‘innovators’ and early adopters who purchase new technology products first is 15%. Currently, the global EV market share is 10%. This suggests that the ‘chasm’ has arrived faster than anticipated. The chasm refers to a temporary stagnation in demand that occurs after the emergence of new technology before it is accepted by the mainstream market.