Evolution or revolution?

Methin Changtor, Asia Powertrain Forecasting Manager

01 May 2018

 

The future of pure electric vehicles in Korea

South Korea has a significant automotive manufacturing industry, as well as a large automotive market – a total of 1.75 million Light Vehicles were sold in the country last year. In line with the global trend, the Korean government has embarked on a series of measures to clean up the environment and tackle air pollution from vehicle emissions. Its principal focus has been on stimulating consumer demand for electric vehicles (EVs) through subsidies and tax breaks at both a national and local level.

Earlier this decade, hybrid vehicles made sizeable inroads in terms of sales in Korea. But, until recently, the uptake for pure battery electric vehicles (BEVs) had been very low as the concept is still relatively new to the Korean customer.

In 2017, however, the Korean BEV market reached a major turning point. At the start of the year, the central government set aside a maximum of ₩18.7 million in grants and tax breaks for up to 10,000 BEVs. Many local authorities followed suit by offering additional subsidies and incentives. Jeju Island is a prime example of a generous fiscal environment for BEVs and, last year, accounted for a considerable proportion of all BEVs sold in Korea, but only a small fraction of overall vehicle sales.

“BEV sales jumped to more than 13,000 units in 2017”

The central government has also invested heavily in increasing the country’s charging infrastructure, in particular public charging stations. Over 2,600 charging stations were built by 2017, with at least 3,000 planned for 2020.

BEV sales jumped to more than 13,000 units in 2017, exceeding the total accumulated over the last few years. The new Hyundai IONIQ, Renault Samsung SM3 and Kia Soul led the charge, with BEVs becoming the second most important EV type in the country.

Battery Electric Vehicles South Korea

This rise in demand prompted the government to increase the number of BEV subsidies this year to at least 20,000, albeit at a reduced level. Moving forward, the authorities are likely to continue promoting the sector through a variety of measures, including extending the subsidies and tax breaks, while also improving the country’s EV infrastructure, such that we expect BEV demand to grow substantially in the years ahead.

“our 2025 projection for EV sales – inclusive of hybrids, BEVs and fuel cell vehicles – equates to just 4% of the total Passenger Vehicle market in Korea”

Hyundai Group is set to be one of the leading players in the BEV market, in terms of both sales and technology advances. The group plans to launch BEV versions of the Hyundai Kona and Kia Niro this year and aims to introduce at least one BEV model every year from now on. As for foreign OEMs, Volkswagen, Mercedes-Benz and BMW are also expected to launch models in Korea’s burgeoning BEV market.

Battery Electric Vehicle BEV Forecast

As the chart shows, demand is projected to rise significantly, surpassing 60,000 units a year by 2025. Note, however, that the overall EV volume will still be low compared to traditional ICE vehicles, at least in the medium term. In fact, our 2025 projection for EV sales – inclusive of hybrids, BEVs and fuel cell vehicles – equates to just 4% of the total Passenger Vehicle market in Korea.

Several factors will account for this, not least the high price barrier of BEVs and the likelihood that subsidies will become increasingly less generous over the longer term. Nor should we lose sight of the fact that the current infrastructure – particularly the availability of charging stations – is still not capable of accommodating a much larger volume of BEVs. This will require more time and a great deal more investment.

With that said, Korea has distinct advantages when it comes to growth in the sector, compared to many other countries. Strong government support, automakers with BEV proficiency and a steadily expanding infrastructure should ensure that Korea becomes a leading global BEV market in the longer term.