Hyundai commits $22.9b over 6 years to add electric, driverless cars

Shares of Hyundai rose in Seoul as the company said it should be more than three times as profitable by the end of the six-year plan.
Shares of Hyundai rose in Seoul as the company said it should be more than three times as profitable by the end of the six-year plan.PHOTO: AFP

SYDNEY (BLOOMBERG) - Hyundai Motor will spend 20 trillion won (S$22.9 billion) over the next six years on new technology to help make the switch to electric and self-driving vehicles.

Announcing its strategic plan to 2025, the South Korean company pledged to spend almost half the new money on electrification. Autonomous driving will soak up 1.6 trillion won of the total, Hyundai said on Wednesday (Dec 4).

The investment forms part of a surge in spending at Hyundai, which like rivals worldwide faces an expensive future of lower-emissions, battery-powered vehicles. Competitors such as Volkswagen have also pledged tens of billions of dollars in investments in electric vehicles.

If successful, the plan should create a more profitable business with a global market share of 5 per cent in 2025, up from 4 per cent in 2018, according to Hyundai. Yet most traditional carmakers are heading in the same direction, and all-electric rivals such as Tesla have a technological head start. That suggests competitive pressures aren't likely to subside in the next era.

German carmakers are set to invest US$45 billion in electric vehicles over the next three years, while General Motors is pushing ahead with a plan to sell 20 EV models by 2023.

Shares of Hyundai rose 0.4 per cent at 11:49am in Seoul as the company said it should be more than three times as profitable by the end of the six-year plan.

Hyundai wants to widen its operating margin to 8 per cent in 2025 - up from 2.5 per cent last year - a level that would make the carmaker among the most profitable on the planet. BMW AG has a margin of 9.3 per cent and Toyota Motor Corp. 8.2 per cent, according to data compiled by Bloomberg, with most other global automakers in the 2 per cent-6 per cent range.

GLOBAL SACRIFICE

The transformation will come at a price. Some 27.9 trillion won of costs, the equivalent of US$23 billion, will be stripped out of the company in the next three years alone, Hyundai said.

 
 
 

That's part of the sacrifice being made at automakers across the world as the industry tackles a tectonic shift in vehicle technology. At the same time, trade-war tariffs hang over decades-old supply chains that serve a dwindling market.

All told, carmakers are cutting more than 80,000 jobs in coming years, according to data compiled by Bloomberg News. The industry will produce 88.8 million cars and light trucks this year, an almost 6 per cent drop from a year ago, according to researcher IHS Markit.

Hyundai also said it plans to buy back 308 billion won of shares by early March.