EVs excluded from tax credits, threatening production base of 4 million vehicles

South Korea's automotive and parts industries are raising alarms over the exclusion of electric vehicles (EVs) from domestic production tax credits, fearing it will undermine the nation's manufacturing base. Despite growing domestic and international demand for eco-friendly vehicles, the lack of direct incentives for domestic EV production is a significant concern.

The industry is urging the government for policy support, emphasizing the need to maintain an annual production capacity of over 4 million vehicles to remain competitive against global manufacturers, particularly from China. This production level is considered a critical threshold for the survival of the domestic automotive ecosystem.

Industry representatives met with the Ministry of Trade, Industry and Energy to discuss the automotive industry's trends, future vehicle transitions, and cooperative measures. A key point of contention is the potential weakening of the domestic automotive ecosystem's competitiveness if EV production support is neglected. The government's recent tax reform plan introduced domestic production tax credits for strategic products but notably omitted EVs.

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We must overcome the difficulties as one team, given that the global automotive industry landscape is being reshaped by transitions to future vehicles.

While eco-friendly vehicle exports increased by 25.5% year-on-year in July, and they accounted for about 60% of domestic sales, the industry worries that increased demand may not translate into sustained domestic production. Production could shift overseas, or increased imports could limit the benefits for domestic factories and parts suppliers.

The exclusion from tax credits is particularly sensitive because it affects the industry's ability to retain domestic production capacity and support the parts sector's transition to future mobility. A stable production volume is essential for parts manufacturers to maintain facilities, secure workforce, and invest in developing components for future vehicles. The government acknowledged the critical juncture, urging a unified effort between the government, manufacturers, and parts suppliers to navigate the industry's transformation.

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We ask that you take a leading role in win-win cooperation in the process of transitioning to future vehicles and artificial intelligence.