South Korea’s top automaker, Hyundai Motors, has decided to sell its factory in Russia to a local company for just about $100, but is leaving the door open for a possible return, leaving the door open for a possible return and a protracted war. The company was forced to withdraw from the market along with other global automakers. Troubles between the country and Ukraine have hampered business in the world’s largest country by area.
The maker of the IONIQ series of electric vehicles said on Tuesday its board of directors will sell all shares in its Russian operations, which include a St. Petersburg factory with an annual production capacity of 230,000 cars and a nearby factory acquired from General Motors. announced that it had been decided. 100,000 units capacity.
Hyundai has priced assets at 10,000 rubles ($111.2) in Art Finance LLC, a subsidiary of Russian car sales company Avilon, which has been touted as a strong candidate to acquire Hyundai Motor Manufacturing Russ LLC (HMMR). Industry sources have revealed that the company plans to dispose of the Soul said. Earlier this year, Art Finance acquired the Russian assets of German carmaker Volkswagen Group.
A Hyundai Motor official in Seoul said, “We have been considering various measures to sell the Russian factory in the most optimal way.” “We have decided to sell (now) because now is the most appropriate time.”
The South Korean automaker is expected to incur a significant accounting loss from the deal, given that the book value of its Russian assets is 287.3 billion won ($219.6 million).
However, Hyundai has reached an agreement with the Russian government with an option to buy back the assets at the sale price within two years.
In May last year, Renault, Russia’s No. 1 carmaker, sold a majority stake in carmaker AvtoVAZ to the Automobile Research Institute for one symbolic ruble with an option to buy it.
Rapidly increasing fixed costs
Hyundai, which together with its subsidiary Kia Motors is the third largest automaker in the world, made this decision after suspending production in Russia for 1 year and 9 months following Russia’s invasion of Ukraine. This compares with other major automakers such as Renault and Toyota Motor Corporation, which exited the company last year.
Hyundai has expanded its operations in Russia, selling more than 230,000 vehicles and becoming the country’s second-largest automaker.
Even as other automakers, including GM, pulled out of Russia due to U.S. sanctions against Russia and falling oil prices in 2014, South Korean automakers ramped up new models for the market. In 2020, Hyundai expanded its investment in Russia by acquiring one of GM’s factories. The sunk costs associated with these investments made it difficult for Hyundai to give up on the market, according to industry officials in Seoul.
The protracted Russia-Ukraine war ultimately forced Hyundai to withdraw from the country spanning Eastern Europe and North Asia. Seoul-based analysts estimate that the company posted an estimated loss of 550 billion won in fixed costs last year as it halted production in Russia. The longer a company does not produce, the higher its fixed costs will be.
Do you want to hold the door open for returns?
Hyundai plans to consider returning to the country within the next two years, but it will be difficult as rivals from Russia and China are rapidly gaining market share in the absence of a major global automaker. According to an industry official in Seoul, there is a possibility that
Hyundai and Kia’s combined market share plummeted from 26.5% in the first quarter of 2022, when Russia launched its first attack on Ukraine, to almost zero.
Since Hyundai does not have its own factories locally, it is likely to use other overseas production sites to meet demand in Russia.
The company is considering investing up to hundreds of millions of dollars to double the EV production capacity at its Nošovice plant in the Czech Republic, Europe’s only eco-friendly vehicle plant.
Write destination Nan Sebin binthere@hankyung.com
Jung Jeong-woo edited this article.