Earlier this month, South Korea announced that it aims to strengthen its domestic vehicle industry through changes to its subsidy programmes. This was evident in new subsidy rules for the procurement of battery-electric buses. These rules now require a high energy density for batteries scarcely achievable by the LFP batteries typically used by Chinese manufacturers, while easily met by the NMC batteries produced by domestic manufacturers LG Energy Solution, SK On, and Samsung SDI.

The South Korean government is now also turning its attention to subsidies for electric passenger cars. Until now, it has provided subsidies of 5.3 to 5.8 million Won for the purchase of an electric car, depending on the vehicle size, equivalent to approximately 3,000 to 3,300 euros. Eligible vehicles have included domestically produced models such as the Hyundai Ioniq 6 and Kia EV3, as well as imported models like the Tesla Model 3 and Y, and the BYD Dolphin and Seal, which are manufactured in China.

Previously, subsidies were primarily based on vehicle performance, such as range per charge and efficiency, as well as the sale price. Buyers of efficient electric vehicles below a certain price threshold received the full state subsidy. However, the South Korean Ministry of Environment and the Ministry of Land and Infrastructure now plan to introduce a complex scoring system.

To qualify for subsidies, manufacturers must achieve at least 80 out of 100 points across seven categories. For example, a manufacturer’s ‘industrial contribution’ is assessed by evaluating how much they collaborate with local suppliers and whether South Korea benefits from technology transfer. Other areas assessed are the company’s investments in South Korean R&D centres, and the number of domestic jobs and the density of the service network (after-sales) are also taken into consideration.

Another critical factor in the new point system is the evaluation of safety management, particularly protection against battery fires. From July 2026, manufacturers must also provide proof of a special EV fire insurance policy to remain eligible for subsidies. This measure addresses public concerns following a fire involving a Mercedes EQE with batteries from the Chinese manufacturer Farasis Energy in the underground car park of a residential building in Incheon in 2024. Subsequently, the South Korean government demanded that car manufacturers disclose their battery suppliers. In apparent response, Porsche recently announced that it would only sell electric vehicles with South Korean battery cells in South Korea. Among some sections of the population, domestic batteries are considered safer than Chinese ones.

Last year, imports accounted for 42.8% of South Korea’s electric vehicle market. According to the South Korean publication Chosun, Tesla alone sold around 60,000 vehicles in South Korea last year. By importing heavily discounted vehicles from its Shanghai plant, Tesla reportedly secured state and local subsidies amounting to approximately 200 billion Won. An industry expert told Chosun: “The government is not aiming to exclude Tesla entirely but is pressuring companies to expand local AS networks, collaborate with parts suppliers, and increase contributions to the Korean market if they wish to receive subsidies.”

chosun.com, chosun.com (Tesla)