EV subsidies could break budgets of local governments

Hyundai Motor's Ioniq5 on display in Yongsan in March [YONHAP]

Subsidies for electric vehicle purchases risk breaking the bank, as demand has been much higher than forecast and local governments may not be able cover their obligations.

The Ioniq 5 from Hyundai Motor and Kia's EV6 have sold well in Korea.

On Tuesday, the Ministry of Environment said it will be working with local governments to address the shortfall. If the demand for the vehicles remains high, the central government may have to supply funds to the local governments to make up the difference.

Another supplementary budget is possible.

The ministry said while there's sufficient funds for EV subsidies covered by the central government, the local governments may fall short in meeting their obligations.

For 2021, the government budgeted 1.02 trillion won ($888 million) to cover subsidies for 121,000 units, which is a 21.4 percent increase compared to the 99,650 EVs last year. This figure also includes two-wheeled vehicles. The budget in 2020 was 817.4 billion won.

Among the 121,000 EVs that the government is targeting, nearly 62 percent are passenger EVs.

Some local governments may not be able to pay subsidies later in the year, as available funds are running low.

Applications for EV subsidies in Seoul and Busan are especially high.

There is growing concern that EV sales could exceed the government's target.

The Ioniq 5 is expected to be delivered to its owners around the end of this month, and the EV 6 in the second half.

In February, 23,760 Ioniq 5 orders were taken, and the car was sold out in a day. That's nearly 90 percent of the annual sales target of 26,500 units.

A total of 21,016 EV6 orders were taken on the first day it was available, exceeding the automaker's annual sales target of 13,000.

The maximum subsidy covered by the central government is 8 million won, which is 200,000 won less than in 2020.

The subsidies covered by the local governments are different. In Seoul, the maximum amount is 4 million won. A buyer in Seoul could receive as much as 12 million won depending on the vehicle, which will be judged on its retail price as well as its performance.

The subsidies provided by the Gyeonggi government are between 4 and 6 million won, while in Busan they are 5 million won.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]