Korean EV cars face trade barriers in Europe

The French government excluded Kia’s Niro and Soul from the list of electric cars eligible for subsidies. Only Hyundai’s Kona had been included in Korean cars, meaning that Korean companies would be disadvantaged at the cost of protectionist measures against Chinese EVs expanding their foothold in the European market.

Last week, France’s Green Industry Act, also known as the ‘French Inflation Reduction Act (IRA),’ came into effect. Based on the act, carbon emissions are measured and scored throughout the entire production process, from procurement of raw materials, production, and transportation, providing subsidies of 7 to 10 million won per vehicle only for electric vehicles that exceed set standards. As the system reflects emissions created from production to shipping to France, countries that are located far away from France are at a disadvantage.

Accordingly, 78 types of electric vehicles were chosen for subsidies, of which 70% turned out to be French or German-brand electric vehicles. There were no Chinese cars, six Japanese cars, and only one American car, Tesla. Among Korean brands, Hyundai’s Kona was the only one included due to its proximity to the Czech production base. Kia’s Niro and Soul are made and exported from Korea. Electric vehicles that do not receive subsidies will find it difficult to compete in the local market. This move is equivalent to a declaration to protect European brands in the European market.

The change will impact Kia Motor first. As of October this year, the number of Hyundai and Kia EVs sold in France recorded 126,000 units, up 5.8% compared to the same period last year. Kia Motors accounts for more than half of this. Korean trade authorities claimed to raise an objection with the French side and request a reevaluation of the excluded models, but it is not easy for only Korean cars to be excluded. Kia plans to respond to the change by producing electric vehicles at its internal combustion engine vehicle factory in Slovakia, but line conversion will require much financial investment and time.

Korean electric vehicle companies and secondary battery companies have been devoting all their attention to investing in the United States and expanding the establishment of local factories in line with the U.S. IRA. France's unexpected measures were an unexpected blow to these companies competing in the European market, catching them off guard. This is a shock following the U.S. government's decision earlier this month not to provide subsidies to Korean-Chinese joint venture battery companies with Chinese shares exceeding 25%.

The issue at large is that exclusive protectionist movements that undermine free trade order can spread to any other region in the world. This imposes the largest ever challenge for ‘Export Korea’ facing trade barriers built competitively by country.