0
The 2027 Hyundai NEXO. / Courtesy of Hyundai Motor

South Korea's hydrogen fuel cell electric vehicle (FCEV) market has surpassed 50,000 units in cumulative sales, but uncertainty is growing over its ability to sustain that growth. The market has expanded thanks to Hyundai Motor's investments in technology and government support for vehicle adoption. However, cuts to next year's subsidy budget and funding shortages among local governments have emerged as major obstacles. Industry officials say more effective policy support is needed, as wider hydrogen vehicle adoption can contribute to growth in the domestic auto parts industry and job creation.

According to the automotive industry on Oct. 26, Hyundai Motor's cumulative domestic FCEV sales reached 50,262 units as of September. The milestone came eight years after the launch of the NEXO, its dedicated hydrogen fuel cell vehicle, in 2018. It reflects the steady expansion of South Korea's hydrogen vehicle market, supported by government subsidies and corporate technological development.

The importance of policy support is also growing because greater hydrogen vehicle adoption could drive growth among domestic auto parts suppliers. Industry officials believe that rather than simply increasing subsidies, the priority should be to improve the central and local government funding system so that allocated budgets translate into actual vehicle purchases.

Sales surpass 50,000 in eight years, bringing growth opportunities to materials, parts and equipment industries

South Korea's hydrogen vehicle market began growing in earnest following the NEXO's launch in 2018. Initially, the passenger vehicle market developed around individual consumers. However, from 2019 onward, the market expanded into commercial vehicles as the central and local governments stepped up policies to replace conventional buses with environmentally friendly alternatives.

Hyundai Motor's cumulative domestic FCEV sales surpassed 10,000 units in 2020, 20,000 in 2022 and 30,000 in 2023. As adoption expanded from passenger vehicles to commercial vehicles, cumulative sales exceeded 50,000 units in September this year.

The growth has been underpinned by Hyundai Motor's long-term technological investments and government support for vehicle adoption. Hyundai began hydrogen fuel cell research in 1998 and introduced the Tucson ix FCEV, the world's first mass-produced hydrogen fuel cell vehicle, in 2013. In 2020, the company began mass-producing its XCIENT heavy-duty hydrogen fuel cell truck, expanding the application of its technology from passenger vehicles to commercial vehicles.

The all-new NEXO, launched last year, also improved its competitiveness by increasing its driving range on a single hydrogen refill from 609 kilometers to as much as 720 kilometers. According to market research firm SNE Research, Hyundai accounted for approximately 70% of global hydrogen fuel cell vehicle sales in the first half of this year, leading the market.

The expansion of hydrogen vehicle adoption is affecting not only finished-vehicle sales but also South Korea's automotive parts industry. An FCEV uses approximately 20,000 components, including specialized parts such as fuel cell systems and hydrogen storage systems. Industry observers say the precision machining and materials technologies developed by conventional internal combustion engine parts manufacturers could create new business opportunities as the automotive industry transitions toward electrification.

More than 90% of the NEXO's key components are sourced domestically, with approximately 60 suppliers participating in its supply chain. According to the Korea Hydrogen Alliance, South Korea had around 3,000 hydrogen-related companies employing approximately 37,000 people as of 2024. Given the industrial and employment base already established across the hydrogen sector, further expansion of the hydrogen vehicle market could create new opportunities for domestic materials, parts and equipment suppliers.

Local funding shortages hamper subsidy implementation

The challenge is that the policy environment needed to sustain growth in the hydrogen vehicle market remains difficult. Even when the central government allocates purchase subsidies, structural limitations arise if local governments cannot secure matching funds, preventing the allocated budget from translating into actual vehicle adoption.

This year, the central government allocated subsidies for 6,000 hydrogen passenger vehicles. However, as of the end of September, local governments had secured the necessary matching funds for only 5,093 vehicles, or 84.9% of the total. The situation is even more serious for commercial vehicles, including hydrogen buses. Of the 1,800 vehicles covered by central government subsidies, local funding had been secured for only about 1,270, equivalent to 70.6%.

This means vehicle deployment can be delayed depending on local governments' financial circumstances, even when central government funding is available. Hydrogen buses, in particular, cost more than passenger vehicles and require larger purchase subsidies, making local funding a direct factor in determining how quickly their adoption can expand.

These difficulties in implementing subsidy budgets are also weighing on next year's vehicle adoption plans. Under the government's proposed 2027 budget, hydrogen vehicle purchase subsidies have been reduced by approximately 23%, from 576.2 billion won this year to 445.7 billion won. Industry officials are concerned that cutting next year's budget because of low implementation rates, when current spending is already being delayed by insufficient local matching funds, could further weaken the capacity to expand hydrogen vehicle adoption.

Because the hydrogen vehicle market remains heavily dependent on government support, a reduction in the subsidy budget could restrict the number of vehicles eligible for assistance and constrain market growth. This could affect not only sales by automakers but also production and investment among related parts manufacturers.

Commercial vehicles, particularly hydrogen buses and trucks, are especially important because their fixed operating routes and high mileage can generate stable demand for hydrogen. Delays in commercial vehicle adoption could negatively affect the profitability of hydrogen refueling stations and the expansion of the hydrogen supply chain.

Slow expansion of refueling stations highlights need for coordinated growth in vehicles and infrastructure

Insufficient refueling infrastructure is another factor constraining the expansion of the hydrogen vehicle market. Hydrogen refueling stations involve relatively high construction costs and stringent site requirements, making it difficult for private operators alone to expand the network rapidly.

Under an earlier hydrogen infrastructure development plan, the government set a target of establishing 310 hydrogen refueling stations nationwide by 2022. However, as of 2026, the number remains around 250. Difficulties in securing sites and the limited commercial viability of operating refueling stations have slowed development below the pace originally planned.

Access to refueling facilities is also closely linked to actual vehicle demand. According to Hyundai Motor, 86% of NEXO buyers have a hydrogen refueling station within an average distance of 7.5 kilometers from their homes. The figure highlights the importance of refueling accessibility for hydrogen vehicle users.

Hydrogen vehicle adoption and refueling infrastructure expansion are closely interconnected. A shortage of refueling stations discourages consumers from purchasing hydrogen vehicles, while limited vehicle adoption makes it difficult for station operators to generate stable revenue. This is why industry observers argue that vehicle purchase subsidies and refueling infrastructure budgets should be implemented in coordination with regional demand and vehicle adoption plans, rather than treated as separate policy areas.

Calls are growing for institutional reforms that would improve actual subsidy implementation rates, rather than focusing solely on the size of subsidy budgets, to support sustainable growth in the hydrogen vehicle market. Proposed measures include reviewing support arrangements for regions struggling to secure local funding, reconsidering the matching-fund structure between the central and local governments, and developing support policies that reflect the different conditions facing passenger and commercial vehicles.

"Reaching 50,000 hydrogen fuel cell vehicle sales in South Korea is an achievement that demonstrates how industry innovation and government policies have worked together to expand the hydrogen ecosystem," an automotive industry official said. "To carry this momentum into the next stage of market growth, passenger vehicles, commercial vehicles and refueling infrastructure must all develop in a balanced manner."

"Above all, we need an effective policy environment that ensures allocated budgets can be implemented without obstacles on the ground, allowing the growth of the hydrogen ecosystem to foster competitive domestic small and medium-sized enterprises and create jobs," the official added.

                                                                                                            Nam Hyun-soo