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| Tesla Model 3 / Courtesy of Tesla Korea |
Feuds between Tesla, Korean gov't deepens over EV incentives
By Nam Hyun-woo
The tit-for-tat between Tesla and the government is escalating after the U.S. electric vehicle (EV) maker was sidelined from a series of incentive programs on low-emission vehicles here.
Industry officials said Sunday this issue could be elevated into a trade dispute between Seoul and Washington as Tesla claims the administration's move violates the Korea-U.S. Free Trade Agreement (KORUS FTA).
Last week, the government announced a revision to the country's incentive programs on low-emission vehicles for this year and halved the government incentive on EVs priced between 60 million won ($54,300) and 90 million won. For EVs priced over 90 million won, the government will not provide incentives.
In Korea, the central and municipal governments each offer incentives to registered drivers purchasing EVs. Municipal incentives are set based on those of the central government.
After the revision, a customer purchasing a Tesla Model 3 Long Range in Seoul will get a 5.13 million won incentive ― 3.41 million won from the central government and 1.72 million won from the Seoul Metropolitan Government. This is down 7.37 million won from 12.5 million won last year. The Tesla Model 3 Long Range was the best-selling EV in Korea last year.
"Given that incentives are still a critical factor in EV sales, the revision will likely be a boost for domestic EV makers and brands importing volume models," an industry official said. "It is difficult to rule out the chances of this being amplified into a trade dispute."
In the revision, the government slashed its incentive cap from 8.2 million won to 8 million won, and lowered incentives given for travel range. Instead, the government increased the amount given for a brand's compliance with government EV initiatives from 200,000 won to a maximum 500,000 won, and added a new criterion for evaluating energy efficiency.
Based on the revision, the Model 3 Long Range comes with a 6.82 million won price reduction, down from 8 million won last year. However, since the vehicle is priced at 64.79 million won, the new price rule is applied, halving the subsidy to 3.41 million won and lowering Seoul city's subsidy too. On the other hand, the buyer of a Tesla Model 3 Standard, which is 54.69 million won, will get a 6.84 million won incentive.
While the Model 3 Long Range faced a drastic cut in incentives, the high-performance Model S was stripped of all of them due to its price range surpassing 100 million won. Along with the Model S, the Mercedes-Benz EQC 400, the Audi e-tron 55 Quattro and the Jaguar I-PACE will also have no incentives.
Tesla buyers claimed 40 percent of the country's 128 billion won in EV incentives allocated for the first half of last year. This led rival firms to claim the incentive program was unfair, saying Tesla "didn't invest much in the domestic economy" while its customers here benefited from the incentives leading to increased sales for the company.
They also said earlier that incentives hurt the price competitiveness of cheaper EVs, because they were originally designed to favor vehicles with a longer range on a single battery charge.
Tesla has reportedly expressed concerns to the Ministry of Environment and other related government agencies over the compliance criteria.
These refer to a government regulation on mandating car brands to meet a certain proportion of low-emission vehicles in their total sales. Brands meeting this receive tradable credits, and those that don't are forced to pay a levy or buy credits.
However, this regulation was applied to just 11 brands which sold at least 4,500 vehicles in Korea from 2009, sidelining Tesla from getting benefits from selling credits. Tesla reportedly claimed this was a violation of equitable national treatment guaranteed in the KORUS FTA.
Article 11.3 of the trade pact states: "Each party (Korea and the U.S.) shall accord to investors of the other party treatment no less favorable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory."
The environment ministry said the regulation was "not aimed at discriminating against overseas companies or targeting Tesla," but industry officials say the revised incentive scheme appears designed to favor cheaper vehicles.
