Hyundai Motor, Kia to receive 25% tax credit for EV plant spending

ULSAN, South Gyeongsang Province – South Korea’s Hyundai Motor Co. is poised to receive a 25% tax credit for its planned investment in a domestic electric vehicle factory as the carmaker faces headwinds in the US, which favors EVs that meet its battery sourcing requirements.

The Finance Ministry on Tuesday announced a revised taxation act enforcement decree, under which investments in EV plants and hydrogen production facilities are eligible for tax breaks.

The announcement is a follow-up to the passage in the National Assembly in March of the so-called K-Chips Act designed to support the country’s key growth sectors, including semiconductors, batteries, electric vehicles, displays and biotechnology.

Initially, the ministry planned to designate only EV propulsion and charging systems as well as autonomous driving sensors as national strategic technologies eligible for tax deductions in the car industry.

However, President Yoon Suk Yeol ordered the ministry to expand the scope of the subsidies to include EV factories to facilitate corporate investment in those plants.

Korean carmakers have so far been granted only a 1% tax credit for their investments in electric car plants.

“We’re adding future mobility production facilities to the list of Korea’s strategic technologies. The government will offer unprecedented support for Korea’s auto industry,” Finance Minister Choo Kyung-ho said during his visit to the Hyundai Motor plant in Ulsan, southeast of Seoul.

SMALLER FIRMS TO GET 35% TAX CREDIT

Under the revised taxation act, big companies can receive 15% tax credits for their key facility investments. For small and medium-sized companies, the tax deduction rate is 25%.

There’s also an additional tax deduction of 10% for this year only on investments exceeding their average annual facility spending over the previous three years. As a result, most big companies can receive a 25% tax credit while smaller firms are eligible for 35% this year.

According to the latest US subsidy guidelines for the Inflation Reduction Act (IRA), tax benefits of up to 30% are reserved for companies building EV factories in the US.

Last month, Hyundai Motor said its Electrified GV70 was denied access to US government subsidies under stricter requirements.

Hyundai, Korea’s top automaker, assembles the GV70 at its Alabama plant but uses batteries made in China by Korea’s SK On Co.

Hyundai said it will move up the operating launch of its $5.5 billion EV plant in Georgia to the second half of 2024 from an original plan for 2025. It also plans to build its latest IONIQ 6 EV sedan in the US in the first half of 2024.

Kia Corp., another carmaking unit of Hyundai Motor Group, said it plans to roll out its latest EV9 model from its US plant as early as the first of next year.

LOOKING TO JOIN THE WORLD’S TOP 3 EV PLAYERS

During Finance Minister Choo’s visit to the Ulsan plant, Hyundai Motor reaffirmed its plan to break ground on a new dedicated EV production line there in the fourth quarter of this year with a 2 trillion won ($1.5 billion) investment. The construction work will be completed by 2025.

Last month, Hyundai Motor Group vowed to spend 24 trillion won until 2030 to become one of the world’s top three electric vehicle makers by then.

As part of the goal, Kia broke ground on its first electric purpose-built vehicle factory at its Hwaseong complex, south of Seoul, which would also mark the group’s first car manufacturing plant to be constructed in Korea in nearly three decades.

If all goes to plan, the Hyundai and Kia EV plants will be the first beneficiaries of Korea’s enhanced tax credits.

“By 2030, we will have a lineup of 31 electric vehicles and expand our domestic annual EV production volume to 1.51 million units. Globally, we’ll roll out 3.64 million EVs a year by then,” Hyundai Motor Chief Executive Chang Jae-hoon said at the Ulsan plant.

Write to Kyung-Min Kang and Se-Min Huh at Kkm1026@hankyung.com

In-Soo Nam edited this article.