South Korean automaker Hyundai will build a new car plant in southwest China to gain further penetration in the country.
IHS Automotive perspective | |
Significance | Hyundai is seeing slower growth in China as a result of the rise of its rivals, the Japanese brands. |
Implications | Hyundai is wining over local consumers by offering China-specific models, specifically designed to attract certain segments of China's car buying masses. |
Outlook | Hyundai aims to raise its production capacity in China and increase penetration to the western regions by locating new facilities away from Beijing. |
South Korean automaker Hyundai has signed a deal with the Chongqing Municipal Government on Thursday (27 March) for a new vehicle production plant. The plant will be located in the Yufu Industrial Park in the Liangjiang New Area of Chongqing, reports China's official state media Xinhua.
Hyundai will also set up further facilities to support the new plant in Chongqing, thereby increasing investment in the city. Chung Mong-Koo, chairman of Hyundai stated that the automaker would set up an advanced car assembly plant as well as a large auto parts park in Chongqing. Reuters quotes an unnamed source stating that Hyundai's China joint venture (JV) may invest KRW1 trillion (USD926 million) in the new 300,000 units per annum (upa) plant, with start of production slated for 2016.
As a result of the signing of the agreement to build the new plant, shares in Hyundai jumped more than 3% on Wednesday, reports Reuters.
Hyundai aims to see sales in China this year of 1.82 million units, Chung stated at the signing ceremony in Chongqing.
Outlook and implications
In 2013, the Hyundai brand saw total sales in China of 1,039,913 units as per IHS Automotive data. In 2013, the affiliated Kia brand saw total sales in China of 548,645 units, bringing the combined Hyundai Group sales to just under 1.6 million units.
The group aims to see sales rise on the back of new models as well as increasing brand penetration in China.
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Source: IHS Automotive |
In 2012, the group saw production in China jump by 14% year on year (y/y) from 1,175,152 units sold in 2011 to 1,340,575 units sold in 2012. In 2013, the group saw sales rise by 18% y/y to 1,588,558 units. This year, IHS Automotive forecasts show that the group will see slower production growth. Our current forecasts estimate that the Hyundai-Kia brands will see a combined growth of around 6.3% y/y.
The reasons that are now slowing Hyundai brand growth to 4.64% y/y with Kia growth forecast at 9.4% y/y growth are higher competition in the market and resurgence of Japanese brand sales and production in China. In 2013, Hyundai brand saw production levels jump by 21.58% y/y in China, while the Kia brand saw production levels jump 13.06% y/y.
Hyundai's new plant in China will give the automaker a further 300,000 upa facility in addition to its three existing plants in Beijing.
Hyundai has had a steady Chinese focus in recent times, with its brand seeing strong growth following the 2012 anti-Japanese sentiment that gripped the country and reduced Japanese brand sales and subsequently production that year following the territorial dispute over the Diaoyu Islands. Hyundai and affiliate Kia saw sales jump, and subsequently production also rose in China that year and in 2013. However, as Japanese brands stage a comeback with strong commitments to bring new models and their premium lines to China, as well as latest technological advancements, the growth of the South Korean brands is slowing. As the overall market sees slower growth rates, what is one original equipment manufacturer's (OEM's) gain is another's loss.
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Elantra Langdong |
Hyundai has in recent years pushed its commitment to the Chinese consumer by launching models designed specifically for its Chinese target customer. In 2012, the automaker introduced the China-specific Elantra sedan, marking the brand's first decade in China. The Chinese exclusive Elantra Langdong is aimed at the "young, new generation" the automaker said at the time of the launch. The Elantra Langdong has an overall length of 4,690 mm and is fitted with a number of in-car technologies, as well as active and passive safety features. The car is produced at the company's third plant in Beijing, which came on steam that year.
Then in 2013, Hyundai launched the China-specific Hyundai Mistra or Mingtu in Chinese. The China exclusive sedan targets "middle class consumers in their early to mid-30s", the automaker said at the time. The car measures 4,710 mm in overall length. Again a number of in-car technologies and safety features are also fitted in the model. "Featuring adaptive TFT-LCD, daytime running lights, power driver seat, cooled driver seat, heated rear seats, rear air ventilation, panorama sunroof, and BlueLink telematics system, Mistra offers high-tech features typically seen on luxury sedans. Safety features, such as side and curtain airbags, VDC (Vehicle Dynamic Control) and TPMS (Tire Pressure Monitoring System), are also included," Hyundai states in a release at the model launch in November 2013.
Hyundai, which operates in China via a local production JV for passenger vehicles with Beijing Automotive Holding (BAIC), currently has three plants in Beijing. IHS Automotive's Light Vehicle Production Forecast Manager for Greater China says that the South Korean brand's Beijing plants will reach full capacity this year, prompting the need for an expanded production base in the future.
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Hyundai Mistra |
Meanwhile, all Hyundai's existing production centres round the capital city of Beijing, venturing to the southwest region of Chongqing gives the brand greater penetration capacity in the western region of China.
Hyundai will introduce more models which are intrinsically aimed at certain segments of China's car buyers. The first model expected to begin production in 2016 at the Chongqing plant is a China-specific sport utility vehicle (SUV) specially targeting the new car buyers in China's inland cities.