Asia's brightest spot outside China, Korea's EV fell 25%, hybrids up 50%, why the sudden shift?
Hans · Oct 18, 2023 04:06 PM
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South Korea is a significant player in Asia's electric vehicle (EV) market outside China, boasting a robust infrastructure and a strong luxury EV market. If you want to watch development of EV in the context of developed Asia, minus China’s centrally planned economy, walled off Internet, and forced monthly caps on registrations of non-plug-in cars, Korea is the market to learn from.
However, recent months saw a 25% dip in EV sales, contrasting a 50% surge in hybrid vehicle sales, is stirring concern among stakeholders and the government.
The decline in EV sales came to the forefront in the Republic's National Assembly, Korea’s equivalent to Parliament, reflecting a broader concern given the government's push to bolster the EV market against Korea’s not-so-friendly, North Korea-backing neighbour – China.
The sudden and rapid reverse of Korea’s EV market
The unsettling reality hit In August, when only 9,553 battery EVs were registered, down 25 percent from the previous month, and down 34.1 percent from last year. Between January to August, total EV sales were down nearly 6 percent from the previous year.
The Hyundai Ioniq 5 and Kia EV6 are two of Korea’s best-selling EV models this year through September, with sales of 12,620 units and 13,874 units respectively. Last month, sales of both models dropped by a shocking 70.6 percent and 73.7 percent respectively.
The Tesla Model Y is the best-selling imported model, with just 6,730 units sold in the first nine months of this year, although this figure is up nearly four times from last year.
Others also opined that after years of promoting the benefits of EVs, Korea is reaching a point of EV fatigue – those who want one, would’ve already bought one. The rest of the public need a lot more convincing that plugging in before they go to sleep is better than making detours and standing at petrol pumps.
The quiet disruptor that everyone missed, Toyota sent in a Trojan Horse
The sudden and rapid reversal of EV sales began after June 2023. In the first half of 2023, sales of BEVs were still up, but at much slower 13.7 percent. Meanwhile, sales of hybrids rose 42.9 percent in that same 6-month period.
The momentum now seems to favor hybrids, which now constitute over 40% of Korea’s new car sales, against many earlier projections predicting it making way for EVs.
Based on a survey by Deloitte Group, Korean car buyers are the second biggest fans of hybrids, after Japan. 40 percent of Korean car buyers say hybrid is a requirement, compared to Japan’s 48 percent, USA’s 28 percent and China’s 26 percent.
The reason for Koreans preference towards hybrids, and slow take up for EVs is easy to understand. Like Japan, a significant portion of Koreans reside in high-rise apartments without dedicated parking spots, making overnight charging for EVs an ordeal.
Even those who live in landed properties may not necessarily have a car park within the property.
This is not a commercial area, but a typical shared residential parking for many working class Koreans living in the city. Source
Violent fights over double / triple parking in shared residential car parks are common subject of many viral videos.
Initially, the government's hefty incentives convinced buyers to gloss over these issues, subsidizing up to nearly 20% of a new EV’s cost. However, as these incentives tapered off, so did the EV sales, indicating a dependency on these subsidies to maintain EV sales, even in high income Korea.
The lesson here is that nuances in local driving habits, down to something as mundane as overnight parking, can have a huge impact on sustaining EV demand. One cannot read too much into current EV sales figures, because as Korea has shown, artificially inflated numbers driven by subsidies don't mean much.
As subsidies are cut, the sales momentum is shifting towards hybrids. Right now in Korea, a drop in sales of a particular model is almost always tied back to shortage in supply of hybrid variants.
This is most obvious in the large minivan segment, a traditionally diesel-dominated segment where neither Hyundai nor Kia offer a hybrid-powered model.
The gap in Hyundai-Kia's powertrain strategy has allowed Toyota - a low-volume Japanese brand operating in a country known for its anti-Japanese sentiments - to leverage on its hybrids to punch through gaps in Hyundai-Kia's defence for what is historically a Korean brand stronghold segment.
The Toyota Alphard, which is only offered with a 2.5-litre hybrid in Korea, secured over 500 orders within just 15 days of its launch, and Toyota dealers in Korea are now managing customer expectations by cautioning them that there is now a 1-year waiting for the Alphard.
This is even though the imported Alphard is 40 percent more expensive than the highest specifications, high roofline diesel-powered Kia Carnival Hi-Limousine and Hyundai Staria Lounge Limousine. Toyota isn't always the first choice for Korean car buyers but in this case, Toyota dealers say the huge demand for the Alphard is simply because there is no other hybrid model in this segment. There's no deeper reason behind.
Reduced EV incentives, increase in charging cost triggered drop in EV sales
The reason behind the rapid slowdown in EV sales is quite simple – the Korean government is closing the tap on BEV incentives.
Previously, buyers of BEVs were given up to 8 million Won (~RM 28k) in subsidies. Together with subsidies from the local municipal, it’s enough to slash the price of Hyundai Ioniq 5 by nearly 20 percent, bringing prices down to less than 40 million Won (~RM 140k).
Under the current reduced incentive, the Ioniq 5 starts at 50 million Won (~RM 176k) after subsidies, that’s 25 percent more expensive than two years ago!
Inflation in commodities have also pushed electricity prices up. In the last three years, average charging cost has risen by 300 percent, from circa 100 Won (~RM 0.35) to 300 Won (~RM 1.05) per kWh. The higher charging cost diminishes the appeal of EVs, which to a regular person who doesn’t care too much about EVs vs ICE, is an EVs supposedly lower running cost.
Of course, fuel prices (~RM 6.10 per litre, RON 91 to RON 94) have also increased, but not by as much, leading prudent buyers to opt for the hybrid path.
Since hybrids don’t require a change in driving habits, dealers also found it much easier to sell hybrids than to upsell customers on EVs.
The Hyundai Grandeur is Korea’s most popular hybrid model. Hybrid variants make up 60 percent of Grandeur sales.
Not a choice, Korea won’t back down from EV commitment
Even as customers are lukewarm to EVs, the Korean government remains committed to promoting EVs, they have to. For them, it’s less about being green, but more of a matter of national security.
China dominates the global EV battery market, and the relationship between China and Korea is not always cordial. If batteries are the new oil, then Korea cannot rely on China.
Korea’s LG Energy, Samsung SDI and SK Innovation vie with China’s BYD and CATL for technological dominance.
To boost EV sales, the Korean government has temporarily increased subsidies by up to 1 million Won, but only if manufacturers reduce their prices by 5 million Won, thus offering users a theoretical discount of 6 million Won.
China's CATL and BYD control more than half of the world's EV battery market, with 36.9% and 15.9% market share respectively. Korea's LG Energy Solution has 14.2%, SK Innovation 5.1%, and Samsung SDI 4.1%, based on data compiled by SNE Research.
Over 15 years of experience in automotive, from product planning, to market research, to print and digital media. Garages a 6-cylinder manual RWD but buses to work.
