Electrification in Korea

The Korean Analytics Team

24 May 2019

Why size matters when it comes to vehicle electrification in Korea

With regulations on tailpipe emissions and greenhouse gases becoming increasingly strict across the globe, vehicle electrification is no longer a choice but a necessity for automakers. In many countries with advanced automotive industries, including China, the current rules require OEMs to sell a minimum ratio of zero-emission vehicles such as battery electric vehicles (BEVs) and fuel cell vehicles (FCEVs). To promote the proliferation of these environmentally friendly products in the market, most governments are relying on subsidies.

When it comes to BEV subsidies, Korea offers one of the world’s highest rates, with 100% of the official rebate being passed on to the consumer. OEMs cut BEV sticker prices by the subsidy rate at the point of sale and subsequently claw back the difference from the government post-transaction.

These generous incentives have ensured that BEV sales in Korea rank among the highest in the world’s major markets (i.e. those with Light Vehicle sales in excess of 1.5 million units). That being said, the latest figures are still very disappointing, with just 1.6% of total Korean sales being taken up by BEVs – all the more so as Korean motorists have been highly receptive to alternative fuels like LPG. For reference, the country’s total vehicle parc in 2018 can be broken down by fuel type as follows: 56.8% for gasoline; 30.9% for diesel; 9.8% for LPB; and 2.5% for all electrified vehicles.

Admittedly, range anxiety and a limited charging infrastructure remain strong deterrents for EV uptake, not only in Korea, but across the globe. To address this, the Korean government is in the process of building a widespread charging infrastructure, while solutions to range anxiety are now real-world options, as demonstrated by the impressive 406 kilometre range that the Hyundai Kona EV can achieve on a single charge. The gasoline-powered Kia Morning, meanwhile, is capable of 427 kilometres on a full tank. The issue for these small, non-dedicated EVs, however, is that they are unlikely to be game changers in Korea where vehicle size is of paramount importance to consumers.

In order to boost EV sales in the country in any meaningful way, OEMs have little choice to but introduce D-segment, or above, long-range EVs. To achieve their EV sales targets, automakers will have to garner the attention of a wider consumer base by offering a dedicated EV built on an EV-specific platform that meets long-range requirements, has an improved battery management system and is manufactured to a high standard.

To this end, Hyundai Group recently announced that it will launch a new electrified model on a dedicated EV architecture, dubbed Electric-Global Modular Platform, in 2020. We anticipate that the inaugural model built on this new platform will be a Midsize BEV sedan under the Hyundai brand. Kia is also reportedly engineering a Midsize CUV on this new architecture. We believe that these new models will prove that what really matters when it comes to boosting the EV sector in the Korean market is vehicle size.