Hyundai Motor Company sells its Chongqing, China plant at half price, going ‘all in’ with luxury strategy

Sale amount KRW 6,800 billion → KRW 2,990 billion
Two operating factories, Beijing 2nd and 3rd factories, remain
Market share in the 2% range, aiming for a turnaround through luxury

Beijing Hyundai, Hyundai Motor Group’s Chinese joint venture, sold its Chongqing plant for approximately 3,000 billion won. This is the second Chinese factory sale following the Beijing Factory 2 about two years ago, and the local production base, which had increased to five, now only has three remaining. Hyundai Motor Company plans to speed up business reorganization through rationalization of production operations.

Chongqing City-owned investment group actively buys

According to the industry on the 17th, Beijing Hyundai sold its Chongqing factory in China at the end of last year to Yupu Industrial Complex Construction Co., Ltd. (Yupu Corporation) located in Liangjiang New District, Chongqing. The Chongqing plant, which began operation in 2017, is Hyundai Motor Company’s fifth production base in China and has an annual production capacity of 5 units. Beijing Hyundai put its Chongqing factory up for sale in August of last year, and completed the sale process in about four months.

The sale price is reported to be 16 billion yuan (approximately 2,000 billion won), which is less than half of the 2,990 billion yuan (approximately 36 billion won) originally proposed by Hyundai Motor Company. Hyundai Motor Company invested approximately 8,000 trillion won to establish the Chongqing plant. After the sale of the Chongqing plant, Hyundai Motor Company has only three Chinese factories, including Beijing Plant 6,800, Beijing Plant 1, and Changzhou Plant, of which the Changzhou plant has been suspended since June of last year.

Yufu Corporation is a company whose largest shareholder is Chongqing Liangjiang New Area Development Investment Group, which is owned by Chongqing City. It is reported that the investment group plans to remodel and operate the Chongqing factory purchased from Beijing Hyundai as an electric vehicle production facility for another subsidiary, New Energy Automotive Industry Development. Regarding this, the prevailing interpretation in the industry is that Chongqing City actually took the lead in taking over this factory.

Chongqing, one of China’s four major municipalities located in China’s Sinan region, is considered a key automobile production base in China. Global automakers and major parts companies, including Beijing Hyundai, Shanghai General Motors, and Changan Automobile, have moved into the eco-friendly vehicle industrial complex in the Yupu Industrial Complex since 4. Last year, the amount of eco-friendly vehicles produced as of November was a record high. It surpassed 2020 billion yuan (about 11 trillion won) for the first time, putting it on par with large industrial cities such as Beijing and Guangzhou.

As the sale of the Chongqing plant is completed smoothly, Hyundai Motor Company’s reorganization of its Chinese business is expected to accelerate. A Hyundai Motor official said, “We are reviewing business efficiency in various ways to improve our business structure in China,” and added, “The sale of the Chongqing plant is part of our efforts to increase profitability through rationalization of production operations.”

Loss has been running since 2019, and electric vehicle strategy is also showing minimal results

Hyundai Motor Company’s struggles in the Chinese market began in earnest due to China’s large-scale retaliatory measures against Korea’s deployment of THAAD (Terminal High Altitude Area Defense) in 2016. Hyundai Motor Company, which recorded the highest annual sales in the Chinese market with 2016 units in 179, saw its sales plummet to 2,000 units in 2022. Operating profit, which reached 25 trillion won in 4,000, has been in the red every year since 2013. In particular, in the three years from 1 to 9,370 alone, a total operating loss of 2019 trillion won was recorded, putting a cloud over the continuation of business in China. Hyundai Motor Company’s market share in China, which once exceeded 2020%, fell to 2022% in 3.

In January last year, the company attempted to turn things around by replacing many of Beijing Hyundai’s executives with people related to electric vehicle technology. This is due to the judgment that the lineup centered on internal combustion engine vehicles will no longer work amid the global movement to expand eco-friendly vehicles. At that time, Hyundai Motor Company reorganized its organization by replacing six people, or about 1%, of the 20 senior executives assigned to China, and later accelerated its electric vehicle strategy in China. However, clear results have not yet emerged. Last year, Hyundai Motor Company’s sales in China amounted to 30 units, an increase of only 6% compared to the previous year.

Will ‘winning strategy’ work in a market with little possibility of re-entry?

The slump of foreign automobile companies in China is not limited to Hyundai Motor Company. A representative example is the Japanese automaker Toyota, which once enjoyed success with low-priced compact models, but showed sluggish performance due to the rapid growth of local brands. Toyota, which recorded its first decline in sales in 2022 after entering the Chinese market, recorded negative growth of 6.6% the following year, increasing business uncertainty. As a result of worsening sentiment toward Japan after the Japanese government announced in August last year that it would release contaminated water from the Fukushima nuclear power plant, Toyota has since been in the midst of normalizing its business, including collaborating with local electric vehicle manufacturer BYD to jointly develop the bZ8, a compact electric sedan. am.

Hyundai Motors put forward a high-performance and luxury strategy. The goal is to avoid unnecessary competition with local companies that dominate the domestic market with prices such as ‘half-price electric cars’ and to become a premium brand with unrivaled technology. Specifically, the sales lineup in China will be reduced from 10 types to 8 types, and sales of high-end sports utility vehicles (SUVs) such as Genesis and Palisade will be accelerated. In addition, we will expand the promotion of strategic models targeting the tastes of local consumers, such as Mufasa.

The industry interpreted Hyundai Motor Company’s move as a desperate self-rescue measure. This is because, in a situation where the market share of local companies is growing, it is virtually impossible to withdraw part of the business and then re-enter it later. An automobile industry official said, “Hyundai Motor Company’s withdrawal from the Chinese market will result in both the local network and brand image built over the past 20 years becoming a sunk cost,” adding, “This is the scenario that local companies who want to eliminate competitors most want.” said.