SECTORAL ANALYSIS

This study analyzes two decades of South Korean vehicle sales data by fuel type to trace structural change in the domestic automobile market, and uses these findings to compare the policy stances of the two ministries spearheading the shift to electric vehicles.

Measured by total sales, the domestic market has reached a mature, stable stage, but its composition by fuel type is being reshaped rapidly. The market share of internal combustion engine (ICE) vehicles plunged from 89.9 percent in 2020 to 57.4 percent in 2025, while the shares of hybrid electric vehicles (HEVs) and electric vehicles (EVs) expanded sharply, to 28.5 percent and 14.1 percent, respectively.

Within the same market, the three vehicle segments are thus at different stages of their life cycles: maturity and decline, transitional growth, and early diffusion. The Ministry of Climate, Energy and Environment (MCEE) and the Ministry of Trade, Industry and Resources (MOTIR), which lead electrification policy, agree on the direction of the transition but diff er in their policy instruments and in how they view HEVs.

The MCEE builds its approach around demand-pull policies and treats a complete shift to zero-emission vehicles (ZEVs) as the ultimate goal, whereas MOTIR favors a gradual transition of the supply-side ecosystem, including support for parts makers, and accepts HEVs as a bridging technology.

Building on this analysis, the study sets out three policy tasks: designing differentiated policies that reflect the different life-cycle stages of the three vehicle segments, formally adopting a cross-ministerial transition timeline grounded in long-term transition scenarios, and aligning the timing of demand-side deployment targets with supply-side support to help parts makers transition to electrification.

JEL classification: L62, L52, O33, Q58