Summary: South Korean car companies, whose production and sales once ranked among the top four in China, are now facing a continuous sluggish sales and the dilemma of serious overcapacity has to be solved.
(Text/Pan Yuchen Editor/Lou Bing) 2022 marks the 20th anniversary of the founding of Beijing Hyundai. But for the first joint venture car company established after China’s accession to the WTO, there may not be much to celebrate at the moment. This Korean car company, which once ranked among the top four in China, is now facing the dilemma of continued sluggish sales and serious overcapacity.
According to people familiar with the matter, the Beijing Hyundai plant in Jiangbei, Chongqing, ceased production in December 2021. In response to this rumor, Beijing Hyundai officials responded that they have not received internal documents from the factory to stop production.
The Observer Network Auto Channel noted that the Chongqing plant is still listed on the factory visit reservation page on Beijing Hyundai’s official website, along with the two factories in Yangzhen, Beijing and Cangzhou, Hebei, and the first and second factories in Shunyi, Beijing, were removed from the page as early as last year.
As early as May last year, Beijing Hyundai’s first plant was rumored to have been sold to the new car-making force Li Auto. With the signing of a cooperation framework agreement between Li Auto and Chongqing at the end of last year, rumors that Beijing Hyundai will also change the Chongqing plant to Ideal are also spreading.
According to South Korean media, Beijing Hyundai is discussing with a number of new energy vehicle companies to take over the second plant, including the newly established Xiaomi Automobile.
The root cause of the successive shutdowns and transfers of Beijing Hyundai factories is the serious overcapacity caused by years of sluggish sales.
At the beginning of the 21st century, Beijing Hyundai created a “modern speed” with annual sales of 1 million vehicles. As of 2014, Beijing Hyundai’s annual sales reached 1.12 million units, a year-on-year increase of 7.5%.
In addition to its three plants in Beijing, Beijing Hyundai built two plants in Cangzhou, Hebei Province and Chongqing, each with a production capacity of 300,000 vehicles, in order to meet the growing market demand at that time. By 2015, Beijing Hyundai has a total of five plants with an annual production capacity of 1.65 million units.
However, since 2014, the competitiveness of Korean cars, which focus on cost-effectiveness, has declined sharply due to the decline in prices of German-Japanese joint venture brands and the increase in the product strength of their own brands. In 2015, Beijing Hyundai’s annual sales were only 1.06 million units, the first year-on-year decline, and in 2017, it fell below 1 million units for the first time. The overall decline of China’s auto market and the arrival of the new crown pneumonia epidemic have further accelerated the decline of Beijing Hyundai.
At the beginning of last year, Beijing Hyundai proposed an annual sales target of 560,000 vehicles, but in the end, the company’s sales fell to 385,000 vehicles for the whole of last year, a completion rate of less than 70%, which also means that more than 70% of the production capacity has been idle for a long time.
In the past 2021, Beijing Hyundai launched a number of new cars represented by the fifth-generation Tucson L, the all-new ix35 and the MPV Kustu, but in the increasingly competitive Chinese market, the above models have received a general response, except for the Elantra that has been fighting for many years, there are no explosive products with annual sales of more than 100,000 units.
In this context, Beijing Hyundai’s previously planned factories in Chongqing and Cangzhou have just been completed, and they are facing the embarrassing situation of idle production capacity. It is reported that the models produced by the Chongqing plant include compact cars such as Rena, Festa, Onsino and ix25. According to data from the Passenger Association, the annual production and sales of the above models last year were only about 10,000 units, and the lowest was less than 100 vehicles.
At present, Beijing Hyundai’s first and second plants have either changed hands or have ceased production, and if the suspension of production at the Chongqing plant is true, it means that Beijing Hyundai’s annual production capacity of 900,000 vehicles will cease operation. But even so, the company’s remaining two plants have an annual production capacity of 750,000 vehicles, which is still double last year’s total sales.
On the other hand, dealer withdrawal incidents due to poor sales and serious losses are also occurring. By 2021, the number of Hyundai dealers in Beijing has shrunk from 800 in the previous year to less than 600.
Despite this, Cui Dongyu, general manager of Beijing Hyundai, attributed the decline in sales in the Chinese market to supply chain factors such as the epidemic and chips, and said that Beijing Hyundai changed from “sales-centric” to “high-quality development” focusing on “improving internal strength”.
According to Du Junbao, executive deputy general manager of Beijing Hyundai, the company has developed a three-year plan to get back on track. In addition to launching more new models, the main aim is to reduce supplier costs and make dealers profitable, ensuring that each product brings revenue to the company.
To this end, Beijing Hyundai’s most of its models with sluggish sales and serious losses will be discontinued, and resources will be more concentrated on major models such as the Elantra, Tucson L, ix35 and Kustu. At the same time, Beijing Hyundai will also increase its share of sales in the new energy vehicle market and launch exclusive electric vehicles in the Chinese market in mid-2023 or 2024.
According to Beijing Hyundai’s plan, the company’s sales target for this year and next is set at 500,000 units, including models exported overseas. The Chinese plant will also serve as Hyundai’s global production base.
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Beijing Hyundai’s production reduction is a direct reflection of the declining position of Korean cars in the Chinese market. During this period, the Korean market share in China also fell from more than 7% in 2016 to 2.4% in 2021, and even lower to less than 2% in January this year.
In this regard, Du Junbao admitted that 2021 will be a very ‘painful’ year for Beijing Hyundai, but he insisted that the results of the company’s efforts will be reflected this year and next, when the company’s operation will be comprehensively improved.
In addition to Beijing Hyundai, another Korean joint venture, Dongfeng Yueda Kia, is also facing a life-and-death threshold due to declining sales and consecutive years of losses. In February this year, Dongfeng Motor Group, which previously held a quarter of the shares, completely withdrew from Dongfeng Yueda Kia, and the new joint venture formed by Yueda Kia announced its name in April and started the road to rejuvenation with a capital injection of 900 million US dollars.
However, in the Chinese car market, which has become a red sea, how many opportunities for Korean cars to return to the track are not determined by a few new cars, a small investment or a few short years of planning.
This article is an exclusive manuscript of the Observer Network and may not be reproduced without authorization.