How Hyundai Motor Group Is Getting Affected by Russia-Ukraine War
In particular, the Russian market is the fourth-largest market after Korea, the U.S., and Europe for Kia Motors, the loss of Hyundai Motor and Kia is expected to reach 450 billion won.
As strong sanctions have been imposed on Russia, Hyundai Motor Group, which has the second-largest share in the Russian market, is also expected to be seriously affected. In particular, the Russian market is the fourth-largest market after Korea, the U.S., and Europe for Kia Motors, the loss of Hyundai Motor and Kia is expected to reach 450 billion won.
According to the industry on March 1, Hyundai Motor sold 171,811 units in Russia last year. It has ranked third with a 10.3 per cent market share. Second-ranked Kia sold 205,801 units, accounting for 12.3 per cent in the market. Although the local brand Avtovaz Lada had the largest share (22.3 per cent), both Hyundai and Kia have seen strong sales in Russia.
By group, Hyundai Motor Group ranked second after Renault Group (Lada). Hyundai Motor Group’s market share is 22.6 per cent, and the combined market share of Renault, Mitsubishi, Nissan, and Lada’s share is 33.8 per cent.
Hyundai Motor and Kia’s sales in Russia accounted for 5 per cent and 8 per cent, respectively, of their total global sales last year. In particular, Kia’s sales in Russia were larger than India (7 per cent), China (5 per cent), Asia-Pacific (5 per cent), the Middle East (7 per cent), and Latin America (3 per cent). Russia is Kia’s fourth-largest market after Korea (19 per cent), North America (27 per cent), and Western Europe (19 per cent).
Hyundai Motor Group also has a large number of local subsidiaries in Russia. There are 55 local subsidiaries established by Korean companies in Russia, of which 18 companies were established by Hyundai Motor Group. In particular, Hyundai Motor promoted Oh Ik-kyun, executive director of the Russian headquarters, to vice president for his contribution to expanding sales and profits in the Russian market.
Most Hyundai Motor Group’s vehicles sold in the global market are produced at its Russian plants.
Hyundai Motor Group’s St. Petersburg plant produces 230,000 units a year, and it also acquired a plant with the annual production capacity of 100,000 units from General Motors in 2020. Hyundai Motor’s new plant was expected to be operated from early this year, but nothing has been officially announced yet.
Despite those efforts to expand production in Russia, it is expected to be hard to generate expected profits due to Russia’s invasion of Ukraine. In addition, the sales volume in the Russian auto market initially reached 2.5 million to 2.7 million units between 2013 and 2014, but fell to 1.5 million units in 2020 due to a decrease in the price of raw materials, Russia’s main export item. As raw material prices rose last year, it was expected that demand will recover last year.
Hyundai Motor Group also set of selling 455,000 units in Russia this year, up 5.8 per cent from the previous year.
However, it has also become uncertain due to Russia’s invasion. In addition, annual car sales in Russia are expected to remain at 1.6 million units due to the international economic sanctions against Russia.
The ruble fell to 119 rubles per dollar on the 28th after Western countries excluded major Russian bank’s SWIFT codes. This is a decrease of 28.77 per cent from the previous day, the lowest ever. In order to respond to the sanctions, Russia’s central bank significantly raised the base rate from 9.5 per cent to 20 per cent.
However, it is expected that the purchasing power will continue to decline as the ruble plunges.
The Korea Automobile Manufacturers’ Association (KAMA) previously predicted that automobile sales will decrease by about 10 per cent if the ruble plunged due to the local wars, and decrease by 29 per cent if full-scale war breaks out.
Korean companies, including Hyundai Motor Group, may also suffer from currency losses due to a sharp drop in ruble. Products produced and sold locally may be relatively less impacted, but export items are expected to be seriously affected even if other currencies are used for risk distribution.
The industry predicts that Hyundai Motor and Kia’s losses may reach 450 billion won. Lim Eun-young, manager of Samsung Securities’ EV and Mobility team, said, “Hyundai Motor’s maximum sales decline is expected to be about 200 billion won, 4 per cent compared to last year’s net profit, and Kia’s maximum sales decline will be 250 billion won, 5 per cent of last year’s net profit.
“However, due to the decreased global automobile production, it is possible to transfer export volume to other regions. As US companies such as GM and Ford have withdrawn from Russia, the competition is currently not that strong.”