Kia’s Chinese joint venture is grappling with the challenge of “complete capital erosion,” struggling to break free from the quagmire. In this situation, local car sales remain sluggish, and with expenses continually increasing, the scale of debt has grown further.
According to Kia’s quarterly report on Nov. 16, Kia’s Chinese subsidiary, Jiangsu Yueda Kia Motors, reported total assets and liabilities as of the end of the third quarter this year at 1.93 trillion won (US$1.49 billion) and 2.66 trillion won, respectively. The company finds itself in a state of complete capital erosion, with liabilities exceeding assets by more than 730 billion won.
Considering the fact that Jiangsu Yueda Kia’s assets and liabilities stood at 2.08 trillion won and 2.48 trillion won, respectively, as of the end of last year, it is noteworthy that this year’s assets have decreased while liabilities have increased. The degree of capital erosion has also more than doubled since the end of last year, growing from 395.9 billion won to nearly twice that amount as of this month.
Jiangsu Yueda Kia saw a growth of around 10 percent in sales for the first three quarters of this year, reaching 1.61 trillion won compared to 1.46 trillion won during the same period last year. However, the company continues to incur an operating loss of nearly 300 billion won. Its net loss for the period also amounts to 331.1 billion won. The cash and cash equivalents are at 115.1 billion won, remaining at approximately one-ninth of the level of the substantial financial liabilities, which stand at 1 trillion won.
Jiangsu Yueda Kia operates as a 50-50 joint venture between Kia Motors and Jiangsu Yueda Group owned by Yancheng, Jiangsu Province, China. Originally, Kia held a 50 percent stake, Yueda held 25 percent, and Dongfeng Motor Corporation held the remaining 25 percent in joint ownership. However, Dongfeng Motor transferred its entire stake to Yueda at the end of 2021 and exited the business.
Jiangsu Yueda Kia fell into complete capital erosion at the end of 2021, coinciding with Dongfeng’s withdrawal. Following this, the company managed to escape capital erosion through a 720 billion won rights issue last year. However, persistent sales challenges have once again led to a complete erosion of capital.
Kia’s sales in China reached a peak in 2016 at 650,000 units, but there has been a rapid decline in sales since the outbreak of the “Terminal High Altitude Area Defense issue.” The sales dropped below 100,000 units last year, and they have remained at 58,000 units as of the third quarter of this year, reflecting a 15.1 percent decrease compared to the same period last year. The market share is a mere 0.4 percent.
Kia is planning to focus on improving the profitability of its Chinese subsidiary through retail-oriented operations and a “fair pricing” policy. Additionally, the company aims to maintain inventory at an optimal level and drive sales recovery by expanding its lineup of electric vehicles. Kia has already initiated sales of the EV6, and it is currently in the pre-contract phase for the world’s first release of the compact electric sports utility vehicle (SUV) model, EV5, in China.