South Korea's green car industry ready to jump but needs help

Jul 20, 2011, 3:06 GMT

Seoul - The South Korean eco-friendly car industry is poised to bloom with new cars coming, but much needs to be done for the industry to gain competitiveness.

Hyundai Motor, South Korea's biggest car producer, and its sister company Kia Motors introduced two hybrid cars in May, the Sonata Hybrid and the K5 Hybrid. Hyundai is aiming to sell 11,000 Sonata Hybrids and Kia 10,000 units of its K5 Hybrid.

Electric Vehicles (EVs) are on their way to mass production as well. Renault Samsung, the South Korean affiliate of French carmaker Renault SA, plans to produce SM3 Z.E. in Korea and Hyundai expects to supply BlueOn to general consumers, both in 2013.

However, sales records indicate South Korean consumers are not yet so enthusiastic about eco-friendly cars. The number of hybrid cars by domestic carmakers sold in February was 293, a decrease of 38.2 per cent from a year ago.

According to the Ministry of Land, Transport and Maritime Affairs, of the 18 million cars registered until January, the share of 'green cars' stood at only 0.1 per cent, with hybrid cars a bit less than 20,000 and EVs at 75 units sold.

The main reason for this small number is that fuel-efficiency does not meet consumers' expectations compared to what they have to pay for a green car.

To promote green car consumption, the Korean government implements policies such as tax incentives, but they are at an early stage yet.

Currently, buyers of new and used hybrid cars are exempted from related taxes and obligatory state bond purchases and can save up to 3.1 million won (2,900 dollars) until 2012.

According to Park Sang Won, an analyst at Eugene Investment & Securities, current tax incentives would be enough to cover the cost of the first battery and could make up for the price gap between hybrid cars and diesel cars.

The government is considering providing subsidies and/or tax incentives for EVs similar to that of hybrid car in September's tax reform.

However, experts call for more fundamental support.

Choi Sang Won, senior analyst of the Korea Automotive Research Institute, notes that government support for research and development is essential as initial development costs are a burden for automobile companies, while acknowledging the necessity of measures to promote consumption.

'Policy adjustments need to be made while maintaining current tax incentives,' he said. 'Korea depends heavily on Japan with basic materials and technologies. If government support can reduce R&D costs, it will result in bringing down the final price that consumers pay and that is a desirable outcome.'