Hyundai outlines EV strategy as it struggles with cost of engine defects

SEOUL — South Korea’s Hyundai Motor pledged to boost sales of electric vehicles to over half a million by 2025 as part of a bid to focus on new technologies and catch up with rivals, but some analysts saw the target as conservative and warned of the costs.

The announcement by Hyundai, the world’s fifth largest car maker along with affiliate Kia Motors, underscores the accelerating strategy shift under Euisun Chung, who became the motor group’s executive vice chairman last year.

Hyundai announced a $35 billion investment last week in mobility and other auto technologies by 2025, less than a month after unveiling a $1.6 billion deal to develop self-driving vehicle technologies with Aptiv.

The firm said on Thursday it plans to launch 16 EV models by 2025 to boost sales of such vehicles 17-fold to 560,000 by that year.

Still, that would be equivalent to just over 10% of its projected global sales this year.

The projection compares with more bullish forecasts offered by its bigger rivals. Volkswagen AG expects to make 22 million EVs over the next decade, while General Motors aims to sell 1 million EVs annually by 2026.

“That is not an ambitious target. If Hyundai fails to boost volumes fast enough, costs of electric cars will weigh on profitability,” Lee Jae-il, an analyst at Eugene Securities & Investment.

Hyundai said that the EV market would face intensifying competition and oversupply soon and automakers failing to meet toughening European emissions regulations will face heavy penalties and suffer a serious blow to their reputation.

“EV supply is expected to surpass demand from the second half of next year,” Ka Suk-hyun, vice president of Hyundai Motor, told an earnings conference call.

Quality issues

Hyundai’s third-quarter net profit rose 59% to 427 billion won ($365 million), well below the average 684 billion profit estimate of analysts based on Refinitiv data, due to 600 billion won provisions it earmarked to address potential engine defects in the United States and South Korea.

Quality issues have been a major drag in Hyundai’s attempt to steer a recovery from six consecutive annual profit declines and constrained its financial firepower to invest in future technologies. It is still under investigation by U.S regulators and prosecutors over potential faulty engines in some models.

Total retail sales fell 3% in the third quarter, as higher U.S. sales, led by a favorable South Korean won and strong demand for sport utilities vehicles, were offset by drops in China and South Korean sales.

Hyundai’s passenger car sales in China fell 7% in the third quarter, after Hyundai closed one of its factories in Beijing.

Hyundai expected its profitability to improve in the current quarter thanks to the launches of new models such as its first premium SUV under its new Genesis brand, as well as higher production of Palisade SUVs.

Hyundai heir Chung also faces challenges in shoring up investor confidence as he prepares a new proposal to revamp the ownership structure of parent Hyundai Motor Group, of which the car maker is the flagship, as part of a succession plan.

The group’s previous proposal was scrapped last year following opposition from U.S. hedge fund Elliott.

Hyundai shares rose 0.8% after the earnings announcement, versus the wider market which rose 0.2%. The shares are up about 2.5% in 2019 after slumping 24% last year.