[Op-Ed] Electric Vehicles Kept Alive by Subsidies: Time to Wake from the Fantasy

Subsidies Keep Pouring In Even for Chinese Electric Buses with a 50% Share of the Domestic Market

In a market economy, we must stop pouring taxpayers’ money into industries instead of letting them compete

The problems with electric vehicle subsidies have not changed since they were first introduced. To this day, electric vehicles are barely extending their lifespan through subsidy programs. Industrial development should be driven by natural competition in the market, yet the electric vehicle industry is prolonging its survival by relying on government subsidy policies.

Subsidies, which come from taxpayers’ money, have artificially created demand for electric vehicles. Through unfair subsidies unavailable to other industries, the government has artificially boosted the price competitiveness of the electric vehicle industry. Such stopgap measures, which amount to little more than window dressing, are nothing less than a waste of tax money. In a market economy, there can be few actions as meaningless as securing competitiveness artificially.

Unless there is technological innovation in batteries, it will be difficult for electric vehicle prices to become competitive. Using government subsidies, rather than technological innovation, to make up for weak price competitiveness obstructs the natural flow of the economy. Even if technological innovation does lower production costs and improve performance, it is still questionable whether electric vehicles can offer clearly differentiated performance compared with commercially available hybrid vehicles.

There are also clear limits to expanding infrastructure such as charging stations. To address the shortage of electric vehicle charging stations, the government made their installation mandatory under the Eco-Friendly Vehicles Act. Because these stations are being installed with tax money, the financial burden has effectively been imposed on the entire public. It would not be unreasonable to view this as an additional cost for supporting electric vehicle subsidies.

Artificial government intervention may undermine the sustainability of Korea’s automobile industry as a whole. Each market participant should compete freely and maintain balance within the market. If, as is happening now, the government grants preferential treatment to a specific sector, it will unfairly harm gasoline vehicle manufacturers that are not eligible for such support. This disadvantage will clearly reduce consumer benefits.

The current subsidy policy takes the form of granting preferential treatment to the electric vehicle industry through tax revenues. As a result, electric vehicle manufacturers are enjoying an unfair advantage. In a market economy, practices that use taxpayers’ hard-earned money to induce unfair competition must disappear.

The current situation, in which subsidies are being forced through even at the expense of industrial balance, has gone so far as to benefit China. In 2023, Chinese-made electric buses accounted for more than 50% of newly registered electric buses in the domestic market. Subsidies have effectively supported sales of cheap Chinese products and helped them establish a foothold in Korea’s domestic market.

Taxpayer money should be used for society as a whole, not to grant preferential treatment to a select few. Preferential treatment inevitably brings side effects. An industry that cannot exist without special favors is not a normal industry. It is doubtful whether electric vehicles could maintain their current position within the automobile industry without subsidies. What should disappear through fair competition must be allowed to disappear.

The current subsidy policy, biased toward electric vehicles, must not continue. The time has come to abandon the unrealistic dream that all vehicles can be replaced by electric vehicles. Preferential treatment must disappear, and competition must be fair. It is unacceptable for taxpayers’ money to be wasted. We must remember that the public is watching the market closely.

Dongwook Kim

Intern Researcher, Center for Free Enterprise (CFE)

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Original title: [칼럼] 보조금으로 연명하는 전기차, 허황한 꿈에서 벗어날 때

Author: Dong-uk Kim

Date: 2024-08-21

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&idx=26804