(C) IEEFA

SEOUL — The Ministry of Climate, Energy and Environment announced on January 1 the "2026 Electric Vehicle Subsidy Reform Plan," introducing a new incentive for drivers who scrap their internal combustion engine (ICE) vehicles in favor of electric alternatives.

Under the new measures, consumers replacing an internal combustion engine vehicle with a mid-sized electric car, such as the Kia EV6, can receive up to KRW 6.8 million in total subsidies. This includes a newly established "ICE Conversion Grant" of up to KRW 1 million.

New Incentives for Vehicle Conversion
The conversion grant is specifically designed to accelerate the phase-out of older fossil-fuel cars. To qualify, the ICE vehicle must have been owned for at least three years. The ministry clarified that transfers or sales between direct ancestors and descendants are excluded from this benefit to prevent fraudulent claims. The specific amount of the conversion grant is proportional to the base subsidy; those eligible for more than KRW 5 million in standard subsidies will receive the full KRW 1 million top-up.

Stricter Battery Efficiency and Price Caps
While the government has previously reduced the maximum subsidy by KRW 1 million annually, it decided to freeze the base unit price at last year’s level for 2026.

Mid-to-large sized EVs: Maximum KRW 5.8 million.
Small EVs: Maximum KRW 5.3 million.
Price Thresholds: Vehicles priced under KRW 53 million receive 100% of the subsidy. Those between KRW 53 million and KRW 85 million receive 50%, while luxury EVs exceeding KRW 85 million remain ineligible.
The ministry is also tightening battery efficiency standards. Models utilizing batteries with lower energy density—such as the Tesla Model Y and BYD Atto 3—are expected to see a reduction in their respective subsidy amounts.

Expansion to Commercial Vans and Protectionist Measures
For the first time, subsidies will be extended to small electric vans, coinciding with the expected May launch of Hyundai Motor’s electric Staria. Subsidies for electric buses and vans are set at KRW 70 million for large vehicles, KRW 50 million for mid-sized, and KRW 150 million for small-sized units.

Furthermore, the government has introduced "anti-exit" clauses to ensure corporate responsibility. Importers and manufacturers must now pass an evaluation of their contribution to the local EV ecosystem, including technical development, after-sales service capabilities, and job creation. Industry analysts view this as a strategic move to curb the dominance of low-cost Chinese electric buses and to ensure that foreign manufacturers do not withdraw from the market after collecting government funds.

Looking Ahead
The Ministry also signaled further tightening for the following year. Starting in 2027, the threshold for full subsidy eligibility will be lowered from KRW 53 million to KRW 50 million to encourage manufacturers to lower EV retail prices. Additionally, criteria regarding charging speeds will be strengthened to favor high-performance charging technology.