Starting this year, the South Korean government will implement varying subsidies for domestically produced electric vehicles and imported electric vehicles. The decision is based on factors such as battery energy density, recycling value, and charging speed. As a result, subsidies for Korean vehicles using NCM (Nickel Manganese Cobalt) batteries, known for their high energy density and recycling value, will see an increase.
The Ministry of Environment announced the ‘2024 Electric Vehicle Subsidy Revision’ on Feb. 6, outlining the core principles. Under the revision, the maximum national subsidy for electric passenger cars has been reduced by 300,000 won from the previous year, now set at 6.5 million won. A 4.2 million won subsidy is earmarked for performance and safety, accompanied by a 1.4 million won execution subsidy reserved for only 10 pre-selected locations. An additional 500,000 won is determined based on the application of innovative technologies such as fast charging, while 400,000 won is allocated based on factors like the installation of charging infrastructure.
The eligibility criteria for full subsidy support have also been altered, with the new threshold applying to vehicles priced under 55 million won, down from the previous 57 million won. Additionally, a new provision has been introduced, offering an additional 20% subsidy for lower-income individuals purchasing electric cars starting this year.
The key factor in new subsidy payment conditions is the energy density of batteries. The formula involves granting higher subsidies for batteries with greater energy density, using the battery cells as the basis. Subsidies remain unaffected as long as the battery density exceeds 500Wh. This structure presents a disadvantage for most LFP (Lithium Iron Phosphate) batteries, typically having an energy density below 400Wh per liter.
The assessment of battery recycling value is based on the extracted metal value from batteries. It follows a method where subsidies decrease as the price of base metals per kilogram extracted from the battery decreases. This approach is favorable for NCM batteries, which incorporate relatively costly materials like nickel and cobalt.
In addition, a supplementary subsidy of 300,000 won is granted to vehicles with fast-charging capabilities, recognizing this feature as an innovative technology. A variation of 200,000 won is determined based on the presence of an ‘On-Board Diagnostics (OBD)’ system, enabling the monitoring of vehicle conditions such as driving history and battery status. Similarly to the previous year, an extra 200,000 won is provided to vehicles equipped with the capability to draw power from the electric car battery for external use (V2L).
The regulations for automobile service centers have become more stringent. Unlike the previous year, when having at least one company-operated service center didn’t lead to a subsidy reduction, this year requires at least one such center in each of the eight regions nationwide to avoid a deduction. Subsidies related to charging station installations also show increased differentiation. Manufacturers of electric vehicles that have installed more than 100 rapid chargers within the last three years receive 200,000 won, while those with over 200 installations receive 400,000 won.
The most impacted company by the recent electric car revision is Tesla, as it stands alone in importing electric passenger cars equipped with LFP batteries. The subsidy gap between Hyundai Motor and Tesla vehicles is expected to widen by approximately 3 million won.
While it seems advantageous for domestically produced cars, concerns are emerging within the domestic industry. The recent slowdown in electric car demand has prompted domestic companies to increasingly adopt LFP batteries. The impact is expected to be significant, particularly for KG Mobility’s Torres EV, which features LFP batteries. Hyundai Motor has also disclosed plans to independently develop LFP batteries, with a primary focus on compact cars in the domestic market. Domestic battery manufacturers, already having revealed plans for LFP commercialization, are facing considerable deliberations on the matter.
From the consumer’s viewpoint, there is a paradoxical situation where purchasing an affordable car may come at a higher cost. Companies are lowering vehicle prices by incorporating LFP batteries, but the corresponding reduction in subsidies diminishes the impact of the price decrease. This misalignment is seen as inconsistent with the Ministry of Environment’s subsidy policy, which typically provides more support for cheaper cars and less for expensive ones.
