EV subsidy funds running out

While demand for eco-friendly electric vehicles prolonged rapid growth, anxiety has also escalated among plausible purchasers as the government’s subsidy balance is showing signs of swift exhaustion.

Despite the government’s hurried move to allocate more budget and to alleviate the subsidy payment conditions, some customers are even considering turning to alternative choices currently available, instead of waiting for the new models amid a stalled manufacturing timeline.

According to data compiled by the Korea Automobile Manufacturers Association, application reception for all-electric car subsidies in Seoul came to 81.5 percent of the yearly budget total as of end-April.

The capital city saw its regional budget for EV subsidy drain out in late September last year, leaving no financial resources for EV purchasers in the year-end season.

This year, South Korea’s government has increased its central expenses for EV subsidies by 28.4 percent on-year, but it still seems to be not enough to embrace the soaring market demands.

In Seoul, the application rate neared the 100 percent level of the yearly budget total as of last week but the actual subsidy payment rate for the entire nation so far came to 68 percent, due to the regional deviation, according to KAMA.

The subsidy amount allocated per car comprises of the central government’s budget and the corresponding local government’s budget. While the local government expenses in the metropolitan Seoul and Gyeonggi area shrunk at a faster pace, other regions saw relatively slow exhaustion of the budget.

“I have recently had the chance to ride an all-electric vehicle all the way to South Gyeongsang Province, which is around 360 kilometers from home,” said Park Dong-eun, 36, residing in western Seoul.

“Due to the car’s maximum driving capacity, which was about 300 kilometers in a single charge, I was prepared to make multiple stops at expressway rest areas, but was surprised to find out the regional imbalance when it comes to the EV charging infrastructure.”

Not only did the number of charging facilities decrease steeply in proportion to the distance from Seoul, many of the facilities were unattended and out of order, according to Park.

“If I were residing in non-metropolitan provinces or had to make long-distance drives often, I probably would have hesitated in purchasing an all-electric vehicle at this point in time,” she said.

Despite the regional gap, however, most provincial governments -- such as Busan and Sejong -- have already seen more than half of their subsidy budget used, raising an alarm for those who are looking to get upcoming models in the later part of the year.

The fast depletion rate has pushed local governments to secure additional funds in the form of supplementary budget, starting as early as this month to run until July.

Also, the Environment Ministry has recently said that it will alleviate the requirements for subsidy payment, citing the delayed production timeline triggered by the automotive semiconductor shortage.

Under current rules, those who apply for EV subsidies are required to receive their car within two months from the subsidy application. The ministry’s plan is to temporarily expand this two-month period to three months until the end of this year.

But the problem is that most upcoming EV models -- especially those by major domestic carmakers -- are facing a considerable production delay, due to the automotive semiconductor shortage.

For instance, the nation’s largest automaker Hyundai Motor is set to present two new all-electric vehicle models under its independent prestige brand Genesis. The company’s Ioniq5, the first vehicle to adopt Hyundai Motor Group’s exclusive electric-global modular platform, successfully logged 43,000 advance orders but customers are raising complaints about the stalled production schedule.

Also, Hyundai Motor’s sister brand Kia closed advance orders for EV6, its all-electric sport utility vehicle, after receiving 21,000 orders, in apparent concern over the likely manufacturing delay.

“The efforts by the Environment Ministry and individual local governments to secure additional subsidy budgets will hopefully dispel the growing concerns in the market,” KAMA Chairman Jung Man-ki.

But policymakers should also look into whether the current subsidy payment method discriminate against domestic carmakers, he added.

By Bae Hyun-jung (tellme@heraldcorp.com)