Hyundai Motor and Kia Face Dilemma in China and Russia

China market share 2-3% last year
Plunged to 1.7% last month
Hyundai Motor's sales in Russia zero for three consecutive months
If withdrawn, re-entry is virtually impossible

Hyundai Motor Russia Factory in Saint Petersburg, Russia

[Asia Economy Reporter Choi Dae-yeol] Hyundai Motor and Kia are struggling in the Chinese market. As sales decline, their market share has sharply shrunk, with no clear signs of a rebound. The situation in Russia is equally frustrating. Since the invasion of Ukraine in March this year and the prolonged war, local factories have been halted. Although several foreign manufacturers have decided to withdraw from Russia, Hyundai and Kia are currently adopting a ‘hold out’ strategy.

According to data from the China Passenger Car Association on the 18th, Hyundai and Kia’s market share last month was around 1.7%. Until last year, it was in the 2-3% range, but it has decreased further this year. According to each company’s investor relations (IR) materials, Hyundai’s local factory sold 203,815 units from January to October this year (wholesale basis; same below), and Kia sold 107,174 units. This is about 20-30% less than the same period last year. Although automobile production and sales in China were disrupted due to the COVID-19 impact, various tax benefits and promotional activities have led to a double-digit growth in the overall new car sales market this year.

Until a few years ago, China was Hyundai and Kia’s largest ‘customer.’ In 2016, sales in China reached 1.8 million units, making it the largest market including South Korea. Early entry into the world’s largest automobile production and sales market and building strong relationships with local provincial governments helped expand their business.

The complete vehicle production capacity in China is about 2.54 million units, the second largest after South Korea. Simply put, the current local factory operating rate barely exceeds 10%. Despite Kia and the Chinese state-owned enterprise Jiangsu Yueda Group’s joint venture Yueda Kia investing several hundred billion won earlier this year, it has again fallen into a state of complete capital erosion. The reasons for the shrinkage are diverse. The industry views it as a result of intertwined factors including conflicts over the deployment of the Terminal High Altitude Area Defense (THAAD), a lack of product lineup in luxury and electric vehicles, and changes in local political and governmental relations.

In Russia, factories are not operating due to the war’s aftermath. Hyundai and Kia have long been considered among Russia’s ‘Big 3’ complete vehicle brands alongside the local brand Lada. Until last year, Hyundai’s Russian factory operated at over 100% capacity, ranking among the highest of Hyundai and Kia’s global factories. After the war, local parts supply became unstable, and purchasing power among general consumers declined. Hyundai’s Russian factory recorded zero sales for three consecutive months from August to last month. Japanese automakers such as Toyota and Nissan have decided to withdraw from Russia, and it is reported that the Japanese government has also banned exports to Russia.

The problem is that the outlook is not optimistic. It is difficult to establish a high-end brand position in China in the short term, and with local companies significantly improving the competitiveness of electric vehicles, it is challenging to break into the market. The rise in vehicle prices and signs of consumption slowdown locally are also negative factors.

In Russia, where local factories cannot operate, Hyundai is coping by utilizing nearby assembly plants in Kazakhstan, but since production volume is not large, there are limits to increasing supply. Hyundai had plans to expand its local business, including acquiring the former General Motors (GM) plant in 2020. The industry expects that if they withdraw, re-entering the market would be virtually impossible.

This content was produced with the assistance of AI translation services.