Unexpected Snag

Hyundai Motor's St. Petersburg plant in Russia
Hyundai Motor's St. Petersburg plant in Russia

The Russian government has reportedly rejected Hyundai Motor's application to sell off its Russian plant. As Toyota, Nissan, Renault, and Volkswagen have already said their goodbyes and left Russia, Hyundai has become the only global carmaker remaining there. With the possibility of a prolonged war looming, Hyundai is expected to seek a new exit strategy as it is difficult to sustain itself locally.

"The Russian government has effectively rejected Hyundai’s latest proposal to sell off Hyundai's Russian plant to a Kazakh company," a senior business official said on Nov. 21. "Hyundai will have to look for new options such as a local Russian state-owned company," the official explained. Some analysts speculate that the Kazakhstan deal may have been derailed by the Kremlin’s concerns about South Korea's alleged arms support for Ukraine. Hyundai had been pushing for selling the St. Petersburg plant to Astana Motors, a Kazakh company with which it has close ties, on the condition that it would buy it back in the future. Hyundai regarded this as a workaround to minimize its losses.

However, the Russian government reportedly refused to approve the deal, which was the snag the Korean automaker hit in its exit from the Russian market.

Unlike other global automakers that quickly left Russia after Russia's invasion of Ukraine, Hyundai has taken a wait-and-see approach. This is because Hyundai and Kia have not been willing to give up their combined number one market share in Russia. “Actually, Russian authorities did not finally inform us that the sale was rejected, but that it is a situation that needs more consultation between the Russian government and the Korean carmaker because the Russian government is imposing new sale regulations,” a senior Korean diplomatic source said. Since the crisis in Ukraine, the Russian government has allowed foreign companies to sell assets in Russia at only 50 percent of their value with 10 percent of the proceeds going to the Russian government.

In the automotive industry, recent negotiations between Volkswagen and the Russian government have implications for Hyundai. Volkswagen dramatically reached an agreement to sell its Russian plant in the middle of May after months of hindrances by the Russian government.

Hyundai built a two-million-square-meter automobile plant with a production capacity of 200,000 units per year in St. Petersburg in 2010 with the strategic goal of establishing a foothold in the Eastern European market and securing Russian cooperation in introducing advanced aerospace-related technologies. Its affiliates, Hyundai Mobis and Hyundai Wia, also made efforts to enter the Russian market. In November 2020, the company even bought a Russian plant with a capacity of 100,000 units from General Motors with the aim of establishing an annual production system of 300,000 units. However, soon after, the Russia-Ukraine crisis broke out, and the plant was suspended indefinitely beginning from March 2022 due to difficulties in supplying parts due to Western sanctions on Russia.

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