With local governments unable to secure matching subsidies for eco-friendly vehicles because of severe tax revenue shortfalls, South Korea’s hydrogen mobility ecosystem as a whole is facing the threat of paralysis. The market downturn caused by the suspension of finished-vehicle rollouts threatens the livelihoods of nearly 3,000 small and midsize parts suppliers and, further, could undermine the foundation for building up technological expertise in the hydrogen industry, a key growth engine for the country’s future.
According to the Ministry of Climate, Energy and Environment and the auto industry on the 28th, the government budgeted national funding this year to support 6,000 hydrogen passenger cars. But as of the end of September, local subsidies had been secured for only 5,093 vehicles, or 84.9%. The remaining 907 vehicles cannot receive national subsidies because local funding is unavailable.
As of this year, the national subsidy for a fuel-cell electric vehicle (FCEV) is 22.5 million won per vehicle, while Seoul provides 7 million won. On Jeju Island, the subsidy is as much as 17 million won. That means Jeju Island residents can receive 39.5 million won in support when they buy an FCEV. Given that the Hyundai Nexo is priced in the 70-million-won range, buying an FCEV without a subsidy is practically out of the question.
The problem is the weak state of local government finances. Another setback is that subsidies for eco-friendly vehicles are provided on a matching basis, combining national funding with subsidies from local governments. If a local council does not allocate subsidies because of a budget shortage, buyers cannot receive support even when national funds remain available. In effect, the expansion of the hydrogen car market hinges on local government finances, which are relatively precarious.
Weak local finances have a knock-on impact on the hydrogen car market. National subsidies left unused because local budgets were not secured must be returned to the state. The remaining funds are then classified as “unused budget,” providing grounds to cut the following year’s budget. The hydrogen car subsidy budget for next year is already set to be cut by 23% to 445.7 billion won, from 576.2 billion won this year.
The way local governments structure their budget categories is also a problem. Because electric and hydrogen vehicles are not separated and are grouped together as eco-friendly vehicles, if all the subsidies are spent on electric vehicles, which have relatively higher demand, support for hydrogen car purchases comes to a complete halt. In that case, national funds earmarked for hydrogen car subsidies that cannot be used are also classified as unused budget.
To make matters worse, the national subsidy for hydrogen passenger cars is also set to be cut by 2.5 million won next year, to 20 million won. A Ministry of Climate, Energy and Environment official explained: “As of this year, the subsidy per FCEV is close to eight times that for an electric vehicle,” adding, “It is difficult to keep providing such large subsidies.”
The situation is even more serious in the commercial vehicle sector, particularly hydrogen buses and trucks, which are key to boosting hydrogen consumption and achieving mass deployment. National funding was allocated for 1,800 hydrogen commercial vehicles, but local governments secured local funding for only 1,270, or 70.6%.
As of this year, national funding for hydrogen buses is 260 million won for high-floor buses and 210 million won for low-floor buses. In Seoul, the local subsidy is 90 million won. Given that a hydrogen bus costs around 700 million won, the subsidy for a high-floor bus in Seoul amounts to about half its price, making this a make-or-break issue for the hydrogen commercial vehicle market.
The number of hydrogen buses eligible for subsidies is also set to fall 22%, from 1,800 this year to 1,400 next year.
Kim Pil-su, a professor at Daelim University College, advised: “To sharply increase the supply of eco-friendly vehicles, the way national subsidies are administered needs to become much more flexible. The matching requirement with local funding should be abolished so consumers can receive at least the national subsidy if they wish, and the system should be made more flexible so national funds can be shifted from areas with a surplus to those with a shortfall.”
A lack of refueling infrastructure and difficulty finding sites for station construction have also been identified as major obstacles to hydrogen car adoption. Infrastructure access is a decisive factor in purchasing decisions: 86% of Hyundai Nexo buyers are owners with a refueling station within 7.5 km of their homes. Yet new station projects across the country are repeatedly stalling amid local opposition and failures to secure sites.
The budget for hydrogen refueling stations has also been cut by 37%, from 189.7 billion won this year to 119.7 billion won next year, making it unlikely that infrastructure expansion will gain momentum.
Poor management of basic administrative data has also emerged as a problem. As of the 28th, the reported number of operating hydrogen refueling stations nationwide varied by source: 253 on the Zero-Emission Vehicle Integrated Website, 248 on the Hydrogen Distribution Information System, 278 on the Public Data Portal and 168 at the Korea Hydrogen Industry Association.
The failure to find solutions to these problems is weakening the hydrogen industry ecosystem as a whole. According to the Korea Hydrogen Alliance, as of 2024, about 37,000 people worked at hydrogen businesses in South Korea, and there were around 3,000 related companies. In particular, if the hydrogen passenger car market withers, fuel-cell system technology could suffer a devastating blow. Japan’s Toyota developed a third-generation fuel-cell system last year, based on technology accumulated through its hydrogen passenger car, the Mirai. The system offers durability and efficiency on par with diesel engines and is planned for future use in heavy-duty trucks, generators, railways and ships.
Hyundai Motor Company is also expanding its fuel-cell business based on technology developed through hydrogen passenger cars. Last year, it invested 930 billion won and began construction of a new hydrogen fuel-cell plant in Ulsan. Scheduled for completion in 2027, the plant will have the capacity to produce 30,000 fuel cells a year and is expected to manufacture next-generation products for passenger and commercial vehicles, as well as construction equipment and ships. Hyundai is jointly developing marine fuel cells with HD Korea Shipbuilding & Offshore Engineering and expanding applications to industrial generators and hydrogen-powered electric cranes. It is also working to develop water electrolysis equipment using fuel-cell technology and components.
Meanwhile, the government agrees that budget cuts are a problem when it comes to subsidies for hydrogen commercial vehicles and refueling infrastructure. Hydrogen passenger cars are at a disadvantage in price competition with electric vehicles, while commercial vehicles can benefit from their long driving range and short refueling times, making support necessary. The hydrogen commercial vehicle market does appear to have room to grow. The Ministry of Climate, Energy and Environment said it received applications this year for about 50 new large hydrogen refueling stations, primarily at sites such as hydrogen bus depots. A ministry official said, “Given the importance of hydrogen refueling infrastructure, we will ensure construction proceeds without disruption.”
[Reporter Woo Je-yoon / Reporter Hyunjun Na]
This article has been translated by GripLabs Mingo AI.
