Hyundai Motor Group moves to revive China operations

SHANGHAI – Hyundai Motor Group saw annual sales of Hyundai and Kia light vehicles in China shrivel from a record high of 1.8 million in 2016 to below 520,000 last year. 

The Korean automaker is finally moving to fix persistent problems with its China operations, though the turnaround plan now only covers Kia. 

Kia, which has assembled vehicles in the east China city of Yancheng since 2002, this week signed an agreement to consolidate control of the joint venture with local partner Yueda Group Corp., a state-owned business conglomerate. 

The sweeping deal contains measures needed to revive their moribund joint venture. 

The joint venture, a 50-25-25 partnership between Kia, Yueda and state-owned Chinese automaker Dongfeng Motor Group, will be revamped into a 50-50 partnership between Kia and Yueda. 

The ownership restructuring, made possible after Dongfeng sold its 25 stake in the joint venture to Yueda for 297 million yuan ($47 million) in December, will simplify decision making and improve operating efficiency.

Kia and Yueda will jointly invest $900 million into the partnership that has bled losses for years.

After offloading a factory to local electric-vehicle startup Human Horizons in 2019, the joint venture still maintains two plants in Yancheng, with combined annual production capacity of 600,000 vehicles. In 2021, sales at the two factories slumped 37 percent to just less than 158,000.

Saddled with low-capacity utilization, the joint venture recorded a net loss of 12.5 billion yuan in the first ten months of 2021 after losing 4.8 billion yuan in 2020, according to information it disclosed in November. 

Kia plans to upgrade and add technology, driver assistance, connectivity and infotainment features across its China product lineup and accelerate the introduction of new and redesigned models, including electrified vehicles. 

The Korean brand will roll out 6 locally produced full electric vehicles developed on a dedicated EV platform though 2027, with the first model, the EV6 crossover, slated to hit the Chinese market in 2023. 

To boost the joint venture’s sales, Kia has also pledged to export more vehicles to markets outside China. 

Perhaps most important, the Korean brand will start to phase out production of vehicles priced below 100,000 yuan ($15,723) to elevate its brand positioning, according to information disclosed by Yueda.  

The move is intended to address a long-standing problem confronting Kia in China: with low-priced models such as the Pegas and Forte sedans and the KX1 crossover, Kia is increasingly seen as a value brand. That has forced it to compete on price with Chinese peers. 

At the Beijing auto show in April, Kia and Yueda will rename the joint venture, now known as Dongfeng Yueda Kia Automobile. 

Beijing on Jan. 1 scrapped decades-long rules capping foreign passenger vehicle makers’ interest in joint ventures with local companies at 50 percent.  

Kia is widely expected to announce at the auto show it will hike its stake in the joint venture and become a controlling shareholder.

The Hyundai brand has also been marginalized in China for many of the same reasons as affiliate Kia: excess capacity, uncompetitive products and low brand recognition.

After abandoning a factory with Chinese EV startup Li Auto last year, Beijing Hyundai Motor Co., a 50-50 partnership with BAIC Motor Corp., retains four assembly plants that together can churn out up to 1.35 million vehicles annually. 

In 2021, annual sales at Beijing-Hyundai sank to below 361,000 from a peak of 1.14 million in 2016.

As Kia regroups, attention now turns to the Hyundai brand and how it will dig out of a major hole in the market.