Lavish Rebates Fail to Jump-Start Korean EV Market

Electric-vehicle manufacturers and proponents kick off this year’s Second International Electric Vehicle Expo with another round of sunny forecasts.

Progress in improved batteries and propulsion systems is likely. Progress in growing consumer demand for EVs has been stunted, however.

The battleground to win acceptance of EVs literally surrounds the manufacturers displaying their wares at the 10-day expo that began March 6 in Seogwipo on South Korea’s Jeju-do island province.

Optimistic predictions and projections were made at the first EV Expo held a year ago. But despite generous government rebates and a relatively large network of charging stations, only 1,183 EVs were sold in the country last year.

Of that total, 852 units, or 72% of the nationwide total, were sold or otherwise distributed on Jeju-do. The island, with a population of 607,000 is Korea’s official EV test bed. It has roughly 500 of the country’s 1,200 charging stations, 10% of which are fast-charge units.

The government’s push to promote EVs is exemplified by Kia’s Soul EV, which claimed more than one-third of the 2014 market with 414 units sold. The ’14 model’s starting price was 44 million won ($39,500), but a 15 million won ($13,500) cash rebate from the Ministry of the Environment lowered the price to 29 million won ($26,000).

On Jeju-do the price dropped to 21 million won ($18,850), after the province’s own 8 million won ($7,200) rebate kicked in. At least one automaker, Nissan, also offers a company rebate.

Kia, not surprisingly, outperformed its sales targets in Korea. Others, including BMW with its innovative i3, fell short.

Last year’s result didn’t dissuade EV Expo President Kim Dae-hwan from predicting 2015 sales in Jeju-do alone would skyrocket some 350% to about 3,000 units. But that is the total number of EVs the Ministry of the Environment plans to subsidize nationwide.

In 2014 the ministry restricted its rebates to just 1,150 buyers, with 500 of the allocations going to Jeju-do.

The government shares Dae-hwan’s expectations of a growing EV market despite falling far short previously. The ministry targeted EV sales of 13,200 units in 2013 but actual deliveries came to just 715 units, less than 20% of the forecast. Last year’s 1,183 sales amounted to a minuscule 1.9% of the projected 60,000.

The 2015 target is 80,700.

Sales forecasts by the manufacturers displaying EVs at the current expo are vastly more conservative. Only Kia beat its 2014 target, selling 616 Soul and Ray EVs after forecasting 500 deliveries. The automaker credits not only the government rebates but also a limited 10-year warranty and availability of a heat pump that preserves battery energy in cold weather.

Renault Samsung was Korea’s No.2 EV seller last year with 309 SM3 ZE units, down from 453 in 2013, when it claimed more than half of the market. The automaker has lowered the EV’s price from 43.4 million won ($38,700) to 41.9 million won ($37,300), which the government and provincial subsidies cut by more than half to 18.9 million won ($16,600).

On the opening day of the expo Park Dong-hoon, Renault Samsung executive vice president-sales, predicted SM3 ZE sales of 1,000 units this year. But the federal government’s 3,000-unit cap on rebates makes deep discounts on more than a few of the automaker’s EVs unlikely.

There are lengthy waiting lists of potential EV customers, both on the mainland and on Jeju-do, all hoping to snag a new vehicle at prices slashed by the rebates to fire-sale levels. But the incentive program, which is costing the federal government $40.5 million this year, is scheduled to expire at the end of 2020.

That would push EV prices up 100% or more, likely leaving EV makers with drastically reduced demand. Marginal sales in turn will continue to curtail production, denying the manufacturers the economies of scale needed to cut prices significantly.