South Korea tightens EV subsidies, linking them to industry strategy

South Korea is reshaping its electric vehicle (EV) subsidy program, shifting from a purely consumer-focused approach to one that strategically bolsters the domestic industry. For over a decade, subsidies aimed to lower the cost of EVs compared to traditional gasoline cars. However, as the EV market matures and low-cost Chinese EVs enter the South Korean market, the government is re-evaluating the purpose of these subsidies.

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We need to consider whether to view subsidies as simple consumer support or as an industrial policy tool to foster the domestic EV ecosystem and supply chain.

The revised program now incorporates an evaluation of manufacturers, in addition to vehicle performance and price. Automakers must now score at least 60 out of 100 points across five categories: technological development, supply chain contribution, environmental policy response, after-sales service, and safety management. This aims to ensure that only capable manufacturers contributing to the broader EV ecosystem receive government support.

The transition has not been without friction. Initial proposals faced criticism from import car companies for potentially favoring certain manufacturers and limiting consumer choice. Subsequent adjustments led to Tesla Korea remaining eligible for subsidies, while Chinese EV maker BYD was excluded. This complex interplay highlights the delicate balance required between protecting domestic industries, ensuring consumer choice, and avoiding international trade disputes.

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While purchase subsidies are still necessary as consumers don't yet feel EVs are price-competitive compared to internal combustion engine vehicles, the system needs to be revised so that subsidies actually benefit consumers.

Globally, countries are adapting their EV subsidy policies to align with national industrial goals. Japan, for instance, is incorporating charging infrastructure development and supply stability into its subsidy calculations. France and the UK are considering the carbon footprint of vehicle manufacturing and sustainability in their criteria. Experts suggest South Korea should clearly define its subsidy objectives and coordinate efforts across consumer support, supply chain development, and user environment improvements to effectively navigate the evolving EV landscape.

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Purchase subsidies should eventually be phased out. As the EV market grows, support should shift from simply reducing purchase prices to improving the actual usage environment, including charging infrastructure and maintenance.