IHS Global Insight Perspective | |
Significance | The South Korean government has urged local automakers to begin mass production of electric vehicles (EVs) in the country during the second half of 2011, much earlier than the originally scheduled 2013. |
Implications | With this move, the government is looking to achieve a strong position in the global EV market, targeting a share of 10% by end-2015. |
Outlook | The two brands under the Hyundai Group plus Renault-Samsung have already shown an interest in EV development. However, it is vital that the government provides the necessary charging infrastructure locally and consistent support from the start if the project is to be a long-term success. |
Following a meeting of the presidential "green" growth committee under President Lee Myung-bak's regime, the South Korean government and the Ministry of Knowledge Economy are calling on the country’s automakers to begin mass production of electric vehicles (EVs) by the second half of 2011. Lee told the media that, "The world [auto industry] is currently engaged in a war to develop [new] automobiles and while it is difficult to predict the future of the industry, EVs will play an important role as the world must move to confront global warming."
Deputy Minister of Knowledge Economy Cho Seok also emphasised that the automakers should look at developing more fuel-efficient and eco-friendly cars going forward and pledged to offer substantial incentives. The government is believed to be finalising legal revisions with regards to the future development of such vehicles in the country. Cho added that, "If all goes according to our plans, local carmakers will be able to grab 10% of the global electric car market by 2015…Such production capability will allow [South Korea] to be one of the world's top four leaders in the EV manufacturing field." Furthermore, by 2020 the government is targeting a 10% market share for EVs in the South Korean small-car market.
Continued Government Support
The call from the South Korean government for automakers to develop more eco-friendly vehicles, including EVs, is not unexpected given its recent support measures, including cash incentives and tax breaks on fuel-efficient models such as hybrid-electric vehicles (HEVs; see South Korea: 24 August 2009: South Korean Government Mulling Additional Support for HEVs by 2010), underlining its commitment to lowering emissions. It is also mulling new standards for "green technologies" in the country. Domestic firms will be certified as "green companies" provided that at least 30% of their total industrial output is manufactured using the prescribed eco-friendly technologies. Such companies are expected to be granted several subsidies, including tax benefits.
Although senior government officials have said that the new state support for EV development is yet to be finalised, the vehicle manufacturers can already benefit from a research and development (R&D) fund worth 400 billion won (US$341.8 million) set aside by the government from now until 2014. Cho stated that, "The government will extend full support to the auto industry [over EV development]…Funds can be made available for individual projects based on market potential." The government is also expected to offer subsidies to other public firms to encourage the purchase of EVs for official purposes. The individual municipal governments have also come forward to grant special incentives such as tax benefits and direct subsidies to the drivers of EVs.
Outlook and Implications
Having introduced stringent new fuel-economy and vehicle emission standards during early July (see South Korea: 7 July 2009: South Korean Government Details New Vehicle Fuel Economy and Emissions Standards), the South Korean government's latest move is another attempt to combat air pollution and also to place the domestic automotive industry on a par with international counterparts.
South Korea currently bans the use of cars that rely on electricity as their only power source, citing safety reasons such as a lack of transportation standards and other administrative issues. Nevertheless, an official at the South Korean Ministry of Land, Transport, and Maritime Affairs told Yonhap that, "Legal revisions have been sent to parliament for passage that will remove all administrative and legal obstacles to operating EVs." Detailed rules on the usage of EVs are expected to be made available in the coming months. Approval of these changes would allow EVs to operate under the same rules as gasoline (petrol) and diesel-powered vehicles in the country.
The two brands under the Hyundai Group, Hyundai Motors and Kia Motors, are seemingly interested in the future development of EVs, the former having shown an electric version of the i10 hatchback compact car at the 2009 Frankfurt Motor Show in Germany (see South Korea - Germany: 17 August 2009: Frankfurt Motor Show 2009: Hyundai to Unveil Electric Model). The pair will invest 4.1 trillion won on eco-friendly projects from now until 2013. Meanwhile, Renault-Samsung is most likely to be at the forefront of EV technology thanks to its relationship with Renault and Nissan, which are planning to launch their own EVs by 2012. Having expressed its intention to produce a EV in South Korea as early as 2011 (see South Korea: 25 September 2009: Renault Aims to Increase Market Share in South Korea, Requests Government Aid for EV Development), Renault-Samsung may well have the market for such alternative-powertrain vehicles in the country to itself for a time as Hyundai and Kia seem more interested in the development of hybrid and hydrogen fuel-cell vehicles for now.
Despite the seemingly positive outlook for EVs in South Korea, the hard part now begins. Although meeting the regulations is not expected to be all that difficult, it will be expensive. There are obviously enormous cost implications in creating a charging infrastructure if the South Korean government is to fully back the plan, while the development of such technology, largely from scratch for some, will undoubtedly involve a cost burden that automakers are unlikely to want to shoulder alone. It remains to be seen whether the kind of funding required will be available to generate the critical mass needed to achieve the levels of penetration that the South Korean government is aiming for. Furthermore, pure EVs are always going to have a limited potential audience until there is a major step change in battery technology that allows for the production of extended-range EVs. Even if the government succeeds with its incentive schemes, the fact remains that the South Korean automakers will face stiff competition from existing EV players, including Renault, Nissan, and Mitsubishi, while others are also likely to enter this field in due course.