SOUTH Korea's passenger electric vehicle (EV) sales may face headwinds in the near term due to heightened safety concerns following several EV fire incidents.
BMI, a a Fitch Solutions company, said the increased scrutiny from both the public and the government is expected to weaken demand, with battery-electric vehicles (BEV) sales anticipated to decline significantly in 2024.
Regulatory changes, including accelerated safety requirements, may further impact the market, although subsidies remain supportive.
"Long-term growth is still expected but at a reduced annual rate," BMI said early this week.
EV Sales Grow In 2023
In 2023, South Korea's passenger EV sales are estimated to have reached 178,710 units, representing a year-on-year (y-o-y) growth rate of 13.4 per cent and a passenger EV penetration rate of 10.7 per cent.
While updated data for plug-in hybrid electric vehicle (PHEV) sales in South Korea is not yet available, local passenger battery electric vehicle (BEV) sales increased by 21.3 per cent y-o-y, reaching an annual sales volume of 162,507 units.
Passenger PHEV sales are estimated to have contracted by 31.2 per cent y-o-y in 2023, dropping to an estimated sales volume of 16,203 units.
Short-term Uncertainty
BMI noted that in August this year, several high-profile EV fire incidents in South Korea, including a Hyundai Ioniq 5 fire and multiple electric bus fires, have raised public and governmental scrutiny, potentially weakening demand for new EVs in the coming quarters.
Many consumers who intended to buy an EV in 2024 and 2025 will likely put the purchase on hold, which could also extend to fleet operators.
In August 2024, a fire involving a Mercedes-Benz electric vehicle in an underground parking lot in Incheon, South Korea, caused significant concern about EV safety. The fire damaged around 900 cars.
According to the National Fire Agency, South Korea saw 72 fires involving EVs in 2023.
While the risk of fires for EVs remains much lower than for internal combustion engine (ICE) vehicles, EVs are relatively new technology, resulting in a more skittish consumer base.
Despite continued support for passenger BEV adoption, we expect South Korean consumers to shy away from the EV market over the coming quarters, resulting in passenger BEV sales decreasing by 24.8 per cent y-o-y in 2024, dropping to under 122,300 units.
Adding to the challenges facing South Korea's EV market in 2024 and likely into 2025 is regulatory uncertainty after the series of EV fire reports.
The government plans to accelerate the introduction of safety regulations for EVs, initially planned for February 2025, reducing the time original equipment manufacturers (OEMs)
have to ensure compliance and potentially delaying the sales of some models.
Safety Measures
In September 2024, the South Korean government plans to issue a legislative notice for new regulations regarding EV safety.
The legislative notice for amendments to the enforcement regulations of the 'Automobile Management Act' will be issued for 40 days ending October 21, 2024.
The EV battery certification system, scheduled to go into effect in February, will launch early on a trial basis in October.
Companies will be required to disclose key information on the batteries, including their brand and main components.
The South Korean Government will implement new certification regulations for EV batteries to address safety concerns following a recent EV fire incident in a parking garage.
This decision was made after extensive discussions between the government and the automobile industry.
BMI said the longer-term outlook for South Korea's passenger EV sales will depend on how well OEMs and the government can allay consumer concerns, especially regarding insurance.
Following the recent fire reports, insurers have announced reviews of their policies regarding EVs, potentially leading to less coverage or higher cost policies for both vehicles and properties.
This increases the downside risk to demand over the medium term, especially because insurance rates are already high due to the cost of EVs and batteries.