SEOUL — Wonhee Lee is piloting Hyundai Motor Co. through a key transition at a trying time. The South Korean carmaker was late to the crossover craze, and it has paid the price in lackluster sales and slumping profits. But starting next year, Hyundai finally will be competing with a fuller lineup, thanks to the addition of two new crossovers.
Hyundai also is testing the waters for the possible launch of a compact pickup in a bid to create an entirely new segment. At the same time, Hyundai's CEO is planning a blitz of eco-cars, which he says may even get next-generation solid-state batteries in the early 2020s.
But even a giant such as Hyundai doesn't find it easy to juggle so many projects.
Hyundai increasingly will work with partners to develop new technologies while carefully cherry-picking limited areas where the automaker thinks it can be a global trailblazer.
Lee, 58, spoke at the automaker's headquarters here last month with Asia Editor Hans Greimel about Hyundai's crossover strategy and plans for production.
Q: What is Hyundai's outlook for the U.S. and Hyundai's performance in it?
A: Overall industry demand in the U.S. market will show some kind of moderate slowdown trend for the next few years. But we believe SUVs will continually gain share while the passenger-car segment loses territory. Our strategy is to launch more SUVs in the lineup in the U.S. market. We have a plan to launch an A-segment SUV early next year and also an E-segment seven-seater SUV next year.
Our business objective next year is to have a slight increase, volumewise, since we have more SUVs to be launched.
And Hyundai expects to end down in sales this year?
Right. In total sales volume, we are having a decrease. But we actually reduced fleet volume and are seeing a slight increase in retail sales volume. So in terms of sales quality, results in the U.S. market have actually improved.
Is Hyundai using incentives to do that?
Yes. Compared with last year, we reduced incentives significantly. But not as much as we planned. But since the market is not so favorable, the capacity issue is the big problem, even in the U.S. market. With that much overcapacity, differentiation is not enough. I believe a price war is unavoidable. To keep our sales volume, there will be reduced incentives compared with last year. But to some extent, we have to spend.
What is Hyundai's capacity in North America?
In the United States, it's 390,000 [vehicles per year] with three shifts, just for Hyundai, not Kia, in Alabama.
And how much is Hyundai using?
330,000 or 340,000.
What are Hyundai's plans for a compact pickup based on the Santa Cruz concept?
Currently, we are developing a semi-pickup based on the next-generation Tucson. We showed the Santa Cruz model to our U.S. customers. But there are some requests from other regions to modify it. We have to reflect other opinions in developing that model. We need a little more time.
What is the timeline?
If we reflect all requests from other regions, probably we can deliver a pickup model in 2021 or 2022. The next-generation Tucson comes to the [South Korean] market 2020, the U.S. market in 2021.
How much demand does Hyundai see?
It's a new segment, so we don't have any data to give us a kind of confidence. But we believe we can create a new segment for pickup trucks in the U.S. market. It's a derivative model. We are just focusing on a niche. If we produce that semi-pickup truck, then we have to produce that model in the U.S. plant, not the domestic plant.
Has the project been greenlighted?
No, it's not decided. Once we make a decision, there will be a 32-month development process.
Does the revised Korea-U.S. trade deal increase pressure on Hyundai to invest in the U.S.?
Yes. Currently we have only 390,000 [units of capacity in the U.S.] We can only produce three models at our U.S. plant. Within 390,000 total production capacity, if we want to produce four or five models, we need additional investment to modify our production line. If we add pickup production in the U.S. plant, we have to invest a significant amount of money.
Hyundai doesn't need more capacity?
We are expecting a slight decrease in overall U.S. demand. Our sales target is also almost flat for the next few years. Three or four years later, maybe we can make a certain decision. But right now, I believe we don't need to expand the production capacity of our U.S. plant.
If Hyundai adds products at the plant, what would they be?
We can add two more, one SUV and one pickup. We can produce the next-generation Tucson at the U.S. plant. And the Santa Cruz semi-pickup truck is a derivative. So, maybe we can produce those two models. The current three models are the Elantra, Sonata and Santa Fe.
How long will this crossover and SUV boom continue?
At least the next five years. For the next five years, the oil price will stabilize around $70 to $80 per barrel. At that price level, I think the SUV market will grow.
What ratio of truck sales to total sales is ideal for Hyundai?
Probably 60 percent. SUV incentives are relatively small. If we increase the sales mix of SUV models in the U.S. market to 60 percent, our profitability will also improve.
How long will it take to get there?
Maybe the next three years. We are trying to increase our adaptability. When the SUV market grows, we will be able to match that growth. The remaining task is shifting production volume from time to time when the market moves. Previously, since we have the strong labor union, whenever we change production plans, we have to get agreement from our labor union. But now, our union is very cooperative. The labor union and management are on the same page.
What is Hyundai's eco-car strategy?
Currently, we have eight eco-friendly models. We plan to increase the eco-friendly lineup to 20 by 2025, from hybrids to fuel cell EVs. Our r&d staff anticipates that solid-state batteries will be introduced within about five years.
I think from 2023 to 2024, when we launch new electrified vehicles, probably solid-state batteries will be available. The number of battery cells will be reduced, so the total cost will be almost the same.
Hyundai has been seen as a fast follower. How is Hyundai now a leader?
A fast-follower strategy gave us great economic benefit. We can save our energy. Not only financial, but in human resources. We try to be a first mover in certain areas. But we are not giving up our fast-follower strategy. If we have technological leadership in some areas, such as fuel cell EVs, then we definitely want to be a first mover. But in other sectors, such as hybrids or electric vehicles, why not take a fast-follower strategy? It gave us some economical benefit.
What is Hyundai's strategy for collaborating on next-generation technologies?
Every company has limited resources. Our strategy is to select and concentrate. I think fuel cell EVs are an area where we have to concentrate. Our other strategy is open innovation. We are trying to partner with startups, ventures that are already established. We are open to anything.