Hyundai and Kia’s Turnaround After Burning 1 Trillion Won on Marketing: “Now We Sell with European Subsidies” [Weekend Money]

As the European Union (EU) has decided to provide electric vehicle (EV) subsidies only for vehicles produced within the bloc, expectations are rising that Korean companies with plants in Europe will benefit.

Samsung Securities analyzed that, due to the so-called "EU-version Inflation Reduction Act (IRA)," under which subsidies are granted only to vehicles for which at least 70% of the value added from parts excluding the battery is created within the EU, Korean companies such as Kia and Hyundai Motor, which have production facilities in Europe, are expected to benefit.

Kia is expected to see growth thanks to EV subsidy policies linked to production lines within Europe. It is projected to receive EU subsidies after starting production of the EV4 at its Slovakia plant in August last year and the EV2 last month.

Hyundai Motor can also receive subsidy benefits. Of the 265,000 units of annual production at its Czech plant (HMMC), the company plans to raise the share of electrified models, including EVs, to 50% by this year. At its T?rkiye plant (HMTR), it is pushing to convert facilities with the goal of starting mass production of EVs in the second half of this year.

Recently, demand for EVs in China, which had been a key market, turned downward after October last year. In the fourth quarter of last year, the growth rate of EV demand slowed to 5% year-on-year, and there are now concerns that demand could decline this year. In particular, demand was hit as EV subsidies were reduced from 20,000 yuan to 15,000 yuan.

Instead, the European market is drawing attention. Last year, EV demand in Europe rose 34.8% year-on-year to 4.4 million units, with a penetration rate of 33.4%. This was driven by the resumption of EV subsidy policies from the second half of last year.

Since July last year, Germany has been implementing a corporate EV promotion policy that allows corporations to deduct up to 40% of the vehicle price (capped at 95,000 euros) from their taxes when purchasing EVs. In addition, Germany has decided to reintroduce subsidies for privately purchased EVs, which had been halted in December 2023, and from this year will provide between 3,000 and 6,000 euros depending on household size and income.

France, for its part, reintroduced an EV leasing program for low-income households in September last year, while the United Kingdom decided in July last year to provide subsidies of between 1,500 and 3,750 pounds for EVs priced at 37,000 pounds or less.

Although the status of Korean-made cars in Europe has risen, the financial burden has been heavy. Of the 1.5 trillion won increase in Kia's marketing expenses last year, about half, or 700 billion won, was spent in Europe. Hyundai Motor spent 1 trillion won in Europe out of its 2.18 trillion won increase in marketing expenses.

Im Eunyoung, a researcher at Samsung Securities, said, "Unlike last year, starting this year Kia, Hyundai Motor and others will produce EVs locally in Europe, allowing them to secure both subsidy benefits and cost competitiveness and thereby shed the burden of marketing and other expenses."