GM-Hyundai tie-up has broad potential

Affordable electric vehicles and hybrid technology could be two areas for collaboration as General Motors and Hyundai Motor Co. work together to cut costs and increase scale, analysts say.

The top U.S. and South Korean automakers offered few details and no time frames. But their Sept. 12 joint announcement identified a swath of areas for potential cooperation, from passenger cars and commercial vehicles to engines, battery raw materials, electrification and hydrogen technology.

A shared focus on the U.S., as both companies' biggest market, as well as strengths in different overseas markets also create openings for them to complement each other.

Success is never guaranteed in such broad partnerships, especially with corporate cultures as different as GM's and Hyundai's. Analysts say it can take years for even the best joint projects to bear fruit.

But the surprise pairing — Hyundai has scant history of working with foreign automakers — invites a wide range of opportunities as the industry contends with an uncertain transition to electrification, automated driving, software-defined vehicles and a rush of rivals from China.

Automakers have delayed some EV investments and pushed out product timelines while preparing a longer runway for gasoline engines than previously expected. At the same time, they're racing to develop affordable EVs for the U.S. to stay ahead of Tesla and China's BYD, which sells an EV for around $10,000 but has said it does not have plans to enter the U.S.

"For all of the non-Chinese brands, they are facing the challenge of competing with Chinese OEMs," said Sam Abuelsamid, principal research analyst at Guidehouse Insights. "This sort of collaboration can help them take cost out of their R&D budget."

Moving faster and sharing cost burdens are two goals outlined, along with finding efficiencies and boosting competitiveness.

GM CEO Mary Barra and Hyundai Motor Group Executive Chair Euisun Chung signed a memorandum of understanding to "immediately" assess areas for cooperation and possible binding agreements, the companies said in a brief joint news release. They didn't mention the possibility of a financial alliance, but Barra said the tie-up offers the potential for "disciplined capital allocation."

"We're talking about two companies that actually have a lot of strengths on their own looking to see how they can become stronger by working on some things together," said Stephanie Brinley, an analyst at S&P Global Mobility. "We are not looking at two weak competitors going, 'Let's get together and try to see what we can fix.' "

Despite their strengths, both giants face shared threats in the onslaught of fresh competition from startups and China. In the critical U.S. market, which Chinese EV brands could target next, GM and Hyundai can support each other by sharing manufacturing capacity and a wider array of powertrain offerings.

Hyundai's larger presence in growth markets such as India and Latin America could help GM expand its reach. Hyundai also can leverage GM's technology in its own lineup for emerging markets, where Chinese entrants are popping up fast.

"Protecting their share in the U.S. market is a key issue for both of them," said Sanshiro Fukao, an automotive analyst and executive fellow at Itochu Research Institute in Tokyo. "Even the Koreans depend heavily on North America and really need to protect it."

Barra has publicly discussed her openness to collaborating with other automakers, citing a desire to reduce R&D and engineering expenses on vehicle components that don't separate one brand from another.

"There's a lot of aspects of a vehicle that the customer just wants it to work. It's not a distinguisher. I don't buy a vehicle for its HVAC system," she said in May at the Bernstein Strategic Decisions Conference.

For most mainstream vehicles, Abuelsamid said, consumers don't care which company builds the engine and transmission as long as they work.

"It makes sense for them to partner up and share technologies, share the investment costs," he said. "They can still gain some benefits of economies of scale even as certain areas shrink and others increase."

Hyundai's work on hybrids could help GM bridge the gap between internal combustion vehicles and EVs, analysts said.

Hyundai plans to debut a second-generation hybrid system in production vehicles in January, and it's working on extended-range EVs that use a gasoline engine to recharge the battery. It has several hybrids on sale in the U.S. now, including a plug-in variant of the Tucson compact crossover.

GM has committed to bringing plug-in hybrids to North America in 2027, potentially in the form of full-size pickups and SUVs.

"GM hasn't fully admitted it, but they definitely need more hybridization, and Hyundai has had successes in that area," said Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions.

GM already has a long-standing manufacturing, design and product development footprint in South Korea, a legacy of its ownership of Daewoo Motors. But that business has struggled in recent years amid spiraling costs and falling sales in the market. Closer collaboration with hometown favorite Hyundai could offer avenues for relief.

Analysts say the two automakers each have strengths with their respective EV platforms: GM's Ultium architecture and Hyundai's E-GMP.

The companies could work together on longer-term goals of affordable and profitable EVs, Fiorani said.

"The GM platforms are designed for larger, more American-focused products, but there's still going to be a need for lower-priced, smaller models that neither one has really entered the market with yet," he said.

Fiorani said Hyundai could source EV batteries from GM's Ultium Cells joint venture with LG Energy Solution to help it comply with federal tax credit regulations. Automakers are working to source battery minerals and assemble EVs in North America so buyers can qualify for $7,500 federal tax incentives.

Hyundai is working with LG on a U.S. battery plant in Georgia, which makes sourcing of raw materials for batteries an area of potential collaboration, said Ed Kim, president of AutoPacific. Both automakers want to lower battery costs and increase energy density.

"The biggest expensive challenge in EVs is surrounding the battery," Kim said. "That's where the obvious opportunities for collaboration between the two automakers really exists."

While GM has a long track record of collaborating with competitors on the international stage, Hyundai doesn't. It's not known how well the South Korean company can find shared priorities, make compromises and get along with strangers from half a world away, said Ian Park, an automotive production analyst at S&P Global Mobility in Seoul.

"Both of the OEMs will have to overcome differences in organizational culture, control tower issues, intellectual property rights and balanced resource allocation," Park said. "Hyundai has never had a specific partnership with another OEM. Therefore, how they resolve these factors will be of the utmost importance."

Ironing out differences can take a long time, analysts note.

In Japan, for instance, Nissan and Honda announced a similarly broad gambit to assess areas of collaboration in March. Six months in, they've only narrowed the fields of focus and said it will take another year to determine the potential to work together on software.

If they can, the software might make it to market in 2028 at best.

Furthermore, analysts stress that achieving massive volume and sharing components is just part of the equation. Legacy automakers also must rethink their business models to take on the low costs and advanced technologies of new players.

"Auto alliances used to be successful because of economies of scale," Itochu Research's Fukao said. "But the Chinese never talk about the number of vehicles they manufacture. Their profits won't come from manufacturing vehicles. It will come from their applications, services and software."

Instead of pairing with another traditional metal bender, GM and Hyundai might have been better served to team up with a partner from the software or computing world, Fukao said.

That is where GM and Hyundai really lack expertise and where they both need outside help in transitioning to tomorrow's technology, he said. The joint statement from GM and Hyundai didn't mention the words "software" or "digital."

"That's why I wonder if this can be successful," Fukao said. "It's too old-fashioned. Each needs to align with someone who has strong applications in software-defined vehicles."