Expanding Investment in Future Mobility
Hyundai Motor Co. will invest more than 45 trillion won (US$40.21 billion) in research and development (R&D) on new cars and future mobility technologies over the next five years. The group is also planning to raise its operating margin from the current 2 percent range to 7 percent by improving its cost structure and raising management efficiency.
Hyundai Motor held a “CEO Investor Day” at the Federation of Korean Industries (FKI) head office building in Yeouido, Seoul, on Feb. 27 and presented the group's mid- and long-term management strategy and core finance strategy.
The carmaker has decided to make a 45.3 trillion won (US$40.48 billion) investment in total over the next five years. The figure reaches 9 trillion won (US$8.04 billion) a year, which is over 3 trillion won (US$2.68 billion) higher than the group’s annual average investment in the last five years, which is 5.70 trillion won (US$5.09 billion).
More specifically, Hyundai Motor will inject 20.3 trillion won (US$18.14 billion) into R&D for new cars and 10.3 trillion won (US$9.2 billion) into regular investment, such as maintenance of facilities and equipment and improvement of old production facilities. It will also spend 14.7 trillion won (US$13.14 billion) on future car technology.
Hyundai Motor will use most of the new car budget for sport utility vehicles (SUVs) and luxury cars, which lead global car demand. The group is planning to increase the number of its SUV models from four in 2017 to eight in 2020 and boost sales of its luxury brand Genesis in the United States. It plans to raise the share of its Genesis brand in the U.S. high-end car market to 4.8 percent, or 31,000 units, this year, up from 1.6 percent, or 10,580 units, last year.
The group will invest 14.70 trillion won (US$13.14 billion) in future mobility technology to achieve vice chairman Chung Eui-sun’s vision of making the group a “smart mobility solution provider.” Of that, car sharing and smart mobility sectors will occupy 6.4 trillion won (US$5.72 billion), vehicle electrification will take 3.3 trillion won (US$2.95 billion) and autonomous driving and connectivity will receive 2.5 trillion won (US$2.23 billion). The remaining 2.5 trillion won (US$2.23 billion) will be used for other advanced research fields.
In particular, Hyundai Motor has decided to improve its technological competitive edge for electric vehicles and hydrogen-powered electric cars in the electrification sector. The group will launch a platform for electric cars in 2020 and establish a production system with a capacity of 500,000 units for hydrogen-powered electric cars by 2030 with the investment of 8 trillion won (US$7.15 billion). Furthermore, it will improve advanced driver assistance systems (ADAS) and autonomous driving technologies to develop future smart cars and test run autonomous robo taxis in South Korea in 2021.
Hyundai Motor Group will also strive to greatly improve its profitability which has been recently worsening considerably. It is planning to boost operating margin to 7 percent and return on equity (ROE) to 9 percent by 2020. As of the end of last year, the group’s operating margin fell to the 2 percent range and its ROE recorded 1.9 percent. This marks the first time that the group has suggested a specific profitability goal to investors.
In addition, Hyundai Motor will secure about 14 trillion won to 15 trillion won (US$12.51 billion to US$13.40 billion) in liquidity to actively respond to the rapidly changing car market conditions. Global automakers have reportedly secured 24 trillion won to 25 trillion won (US$21.45 billion to US$22.34 billion) of liquidity in working capital and contingency fund.
An official from Hyundai Motor said, “We need to secure funds that we can tap into when we need working capital for business activities and to be able to pay more than 1 trillion won (US$893.66 million) in dividend.”
Industry watchers said that Hyundai Motor has presented its medium and long-term visions to gain shareholders’ trust as U.S. activist fund Elliott continuously put pressure on the group. Hyundai Motor appointed Chung as CEO of Hyundai Motor and Hyundai Mobis on the previous day so that he can be actually responsible for group management and pledged to expand the group’s shareholder return.