Expansion of Manufacturing Base
Hyundai Beijing decided to build its fourth plant in China in Chongqing and will start the construction once government approval is granted. The location reflects the automakers’ intention to accelerate its penetration of China’s inland market.
The annual production capacity of the new manufacturing facilities is estimated at 300,000 units. At present, its three plants located in Beijing have a combined capacity of 1.05 million vehicles. The company is expected to be able to increase the capacity to 1.51 million units by 2016 with the commercial vehicle plant in Sichuan, which will be put into operation before the end of the first half of this year with a production volume of 160,000 vehicles, and the fourth plant in Chongqing. Adding Dongfang Yueda Kia’s three plants in Yancheng, which produce 740,000 cars a year, the Hyundai Motor Group manufactures 2.3 million units of vehicles each year in China.
The annual demand for cars is estimated to reach 20.06 million in China in 2016. Volkswagen and GM are planning to increase their capacity to 4.23 million and 3.8 million by then, respectively. Facility expansion is not an option for Hyundai to maintain a market share over 10 percent while competing with them.
The GDP growth rate of the western inland region was 12.3 percent last year, which is much higher than the 7.7 percent of China as a whole. In addition, the region is in the middle of a development boom, and car demand is skyrocketing.
The location has some political implications, too. These days, the Chinese government is committed to the development of Chongqing in an effort to narrow the income divide between the urban and rural areas and shift the focus of the national economy from export to domestic consumption. This means that Hyundai’s investment in the western inland region complies with the government policy. If Hyundai wins over the public there, it can achieve justification and practical benefits at the same time. The company is expected to break the 10 million mark this year in cumulative sales volume, after 12 years of business in China, by selling 1.71 million cars in 2014 alone with a sales growth rate of 8.4 percent. Then, Hyundai will lay claim to the title of selling 10 million cars each in Korea, the United States, and China. The fourth plant can be a sales booster.
It is said that a lot of major inland cities of China competed to attract the plant because of the company’s unique and traditional overseas market development strategy in which it comes along with Korean auto parts manufacturers. This means that Hyundai’s plant appeals greatly to the local government in China in terms of investment inducement, job creation, and tax revenue increases.