Hyundai Motor Co. and its affiliate Kia Corp. are having a blockbuster year, posting record profits as sales surge globally. The only black mark is China, where a lackluster performance is raising questions about their future in the world’s biggest automobile market.
The Korean carmakers’ sales there have dropped off a cliff amid a fierce price war and a rapid transition to electric vehicles. The impact is apparent, with Hyundai cutting its manufacturing facilities in the country by more than half and reducing its line-up to eight mainly luxury brands, down from 13.
While Hyundai and Kia have suffered sagging sales in China for more than five years, the first seven months of 2023 were the worst in at least 15 years, according to China Automotive Technology and Research Center. Including Kia, the world’s third-largest automaker now commands less than 2% of the Chinese market, down from about 10% during its heyday in 2009.
The companies now need to make tough decisions about how they plan to operate in their Asian neighbor’s auto market, which makes up just 5% of their sales. Even with disappointing results in China, Hyundai reported its highest quarterly profit in history for the three months ended June 30 - after posting record earnings in 2022 - led by popular models like the Ioniq 5 EVs in Europe and Tucson SUVs in US.
Their success outside of China is raising questions about how they should operate within it.
“To increase market share in China, Hyundai would have to reduce supplies to US and Europe,” said Kim Jin-Woo, an analyst at Korea Investment & Securities Co. in Seoul. “Should they sacrifice the high margins in those markets? I’m not sure.”
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Not Alone
Japanese and German carmakers are facing similar challenges in an effort to beat rivals such as Tesla Inc. and BYD Co. Last year, Stellantis NV shuttered its only Jeep factory in China, while Volkswagen AG and General Motors Co. are struggling with tough competition from local makers.
But Hyundai is facing a dual dilemma in China: its prices are too high to win against domestic brands, while its perceived quality and reputation fall short of Japanese cars, according to Yale Zhang, the managing director of Shanghai-based consultancy Automotive Foresight.
Politics may have exacerbated the situation. Tensions have been running high since 2017, when a wave of anti-Korean sentiment took hold in China over the deployment of a US anti-missile system in South Korea. Retaliatory measures against Korean products, including Hyundai’s cars, went into effect.
The company never fully recovered. Auto sales began to slow and the market rapidly turned to EVs, said Zhang. China’s EV market is now dominated by local brands, with Tesla the only foreign carmaker ranked among top 10 EV makers in 2022, according to BNEF.
Hyundai remains committed to the Chinese market, and is focusing on improving sales momentum and brand perception, it said in an e-mailed statement to Bloomberg. It’s offering diverse options including the popular sport utility vehicle Palisade and luxury Genesis models, while it’s “dedicated to delivering Chinese customers the Hyundai EV experience, featuring unique technology and design,” it said.
Hard Work Ahead
One lingering question is how hard the companies want to work to become competitive in China’s EV market, where a plethora of options has created a bubble that’s already starting to deflate.
Hyundai and Kia sold only around 300 new energy vehicles in total in China in 2022, compared to 1.8 million by BYD and about 439,000 by Tesla. That’s much fewer than Toyota Motor Corp.’s 10,326 and Honda Motor Co.’s 14,180. Hyundai’s popular EV Ioniq isn’t available in China, where it sells few models.
Hyundai pursued electrification faster and more aggressively than its Japanese rivals and some European carmakers, but it was far slower than Chinese players, said Kim Tae-Nyen, president at Mirae-Mobility Research and Service. It also suffered an early misstep, when honorary chairman Chung Mong-Koo - the father of current executive chair Chung Euisun - pursued hydrogen vehicles rather than battery-powered cars.
“Chung Mong-Koo didn’t expect the fast growth of EVs in China, so he didn’t invest in EVs and software,” Kim said. “Chinese carmakers have better self-driving technologies and offer a variety of options for EVs - from luxury to budget cars.”
Pulling out of the biggest EV market would undoubtedly hurt Hyundai’s image and could slow its progress as the world embraces clean energy.
“To be considered a loser in the EV competition, that reputation will go global eventually,” Zhang said.
--With assistance from Myungshin Cho.
Author: Heejin Kim, Linda Lew and James Mayger