Price cuts and cash incentives have helped offset the loss of the $7,500 tax credit
But the strategy could weigh on profitability if discounts continue
Chung Euisun, executive chair of Hyundai Motor Group, delivers a New Year’s address at a 2024 ceremony held at Kia AutoLand Gwangmyeong.
[Insight Korea = Kim Dong-su]
The end of U.S. electric vehicle subsidies had raised expectations of a market slowdown. But some electric models from Hyundai Motor and Kia saw their U.S. sales rise in April from a year earlier. Analysts say manufacturer-led price cuts and cash incentives helped support demand.
Actual April sales show the pattern. Hyundai’s Ioniq 5 sold 3,603 units in the United States, up 6 percent from the same month last year. Kia’s EV6 sold 728 units, up 11 percent, while the EV9 sold 1,349 units, a 481 percent increase from a year earlier. Although the $7,500 electric vehicle subsidy, equivalent to about 11 million won, was eliminated at the end of last September, monthly sales of key electric models increased rather than declined.
In the United States and other global electric vehicle markets, subsidies are considered a major factor influencing sales. Because electric vehicles are more expensive than internal combustion engine vehicles, the removal or restriction of subsidies inevitably weakens their relative price competitiveness.
Many in and around the industry had expected the end of local subsidies to have a significant impact on Hyundai and Kia, which had been focusing heavily on the U.S. electric vehicle market. The prevailing view was that growth in the local EV market would lose momentum. According to a report released in March by the Korea Automobile & Mobility Association, Princeton University forecast that the end of EV support policies would reduce U.S. electric vehicle sales by 30 percent by 2027 and by 40 percent by 2030.
Jim Farley, Ford’s chief executive, also said at the Ford Pro Accelerate event last September that “the U.S. electric vehicle market will be much smaller than we expected” because of the end of subsidies.
Discounts Filled the Subsidy Gap, but Profitability Is Under Pressure
In practice, Hyundai and Kia’s EV sales have moved in a somewhat different direction from those forecasts. The Ioniq 5 sold 13,393 units in the United States from January to April this year, up 11 percent from 12,022 units during the same period last year. The EV9 also edged up to 4,089 units from 3,988 units a year earlier.
The sales increase reflects a shift in pricing strategy. Hyundai lowered the U.S. price of the 2026 Ioniq 5 by $7,600 to $9,800 depending on trim, with an average cut of $9,155. Kia is also offering a $10,000 cash incentive on the EV9. In effect, the companies have filled the gap left by EV subsidies with price cuts and incentives.
Moon Hak-hoon, a professor in the Future Electric Vehicle Department at Osan University, said this year’s local EV sales performance appears to have been driven by manufacturer discounts and cash incentives.
“From the consumer’s perspective, whether the benefit comes from a subsidy or from a manufacturer lowering the price, the effect is the same: the final purchase burden falls,” he said. “That appears to be why these sales results were achieved.”
Still, it is unclear how long Hyundai and Kia can maintain this sales approach. Electric vehicles are known to be more difficult to make profitable than internal combustion engine vehicles because batteries account for a high share of costs. If price cuts and cash incentives are added, profit per vehicle inevitably declines.
If the companies continue injecting discount funds to maintain sales volumes in the U.S. EV market, the pressure on profitability could increase further. On the surface, the figures show sales growth. But underneath, manufacturers are directly absorbing the gap left by the removal of government subsidies. In the long run, the strategy chosen to defend sales could become a burden on the companies themselves.
“In the long term, manufacturers cannot carry the burden of price cuts and cash incentives forever,” Professor Moon said. “Eventually, they will have no choice but to adjust the scale of discounts while watching competitors such as General Motors and Ford.”
Some observers say expanding local production could help ease the burden on manufacturers. If the share of vehicles produced in the United States rises, logistics and tariff costs could fall, improving price competitiveness. In that case, the promotional burden required to offset the loss of EV subsidies could also be reduced to some extent.
Kim Pil-soo, a professor in the Future Automotive Department at Daelim University, said Hyundai and Kia have already announced a plan to produce 80 percent of their U.S. sales volume locally by 2030.
“If they gradually raise the local production share to around 50 percent this year and 60 percent next year, price competitiveness could improve,” he said. “In that case, the burden of their own promotions could also gradually decline.”
-This article was translated by ChatGPT. (이 기사는 챗GPT가 번역했습니다.)
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