Hyundai's Hype Falls Short on Substance

(Bloomberg Opinion) -- For a company that’s been preoccupied fending off pressure from activist fund Elliott Management Corp., Hyundai Motor Group hasn’t been too busy to roll out a string of big business announcements. 

On Tuesday, the South Korean auto group unveiled plans to invest almost $7 billion with its suppliers in fuel-cell vehicles, with a target of producing half a million units over the next decade. On the same day, it shook up management, appointing a new head of research and development and elevating its chief innovation officer to president.

Hyundai's Hype Falls Short on Substance

Investors cheered the announcements: Hyundai Motor Co. shares rose as much as 9 percent, while affiliates Hyundai Glovis Co. and Hyundai Mobis Co. gained even more.

Last month, Hyundai said it made a strategic investment for an undisclosed amount in allegro.ai, a tech company that specializes in deep learning (and all the artificial intelligence jargon you've ever heard). Prior to that, the group disclosed that it’s put money into AI startups in the U.S. and China. It’s also been investing in robots.

The drumbeat of statements comes as Elliott, with cumulative stakes initially valued at more than $1 billion across multiple Hyundai companies, has been agitating to boost shareholder returns.

Hyundai has barely engaged with Elliott, run by billionaire Paul Singer, since the activist campaign started earlier this year.  In its latest letter to the group on Nov. 13, Elliott included an independent analysis conducted by Conway MacKenzie Inc., a consulting firm. The analysis found that Hyundai was “grossly overcapitalized” and had a “history of questionable use of cash flow,” saying its reporting “distorts and hides” the real amount of cash in the group.

Low investment in R&D and capital investments that lacked rationale were among the questionable expenditures identified by Conway MacKenzie. Hyundai has poured money into non-core assets such as advertising, hotels and life insurance companies.

So does the latest slew of announcements trounce critics who contend Hyundai doesn’t spend enough of its money on research and development? Unlikely.  

Its R&D strategy is incoherent at best: While trumpeting the fuel-cell investment, the group has committed to more than tripling its lineup of battery-powered electric cars – a wholly different technology – by 2025. It’s also been talking about developing autonomous vehicles by 2030.

These headline-grabbing investments are mostly experimental, like those of other automakers. The $7 billion commits Hyundai to a clean energy technology that hasn’t gotten much traction in the auto world, given the cost and lack of depth in technology. Toyota Motor Corp. started championing fuel cells a few years ago and didn’t get very far. It pivoted to electric vehicles instead, following the competition into a technology that has a more realistic chance of success. 

 Infrastructure for fuel cells is limited. Vehicles powered by the technology are expected to account for less than 0.5 percent of the auto market in 2025, according to a Goldman Sachs Group Inc. estimate. Battery-powered electric and hybrid cars are predicted to reach 20 percent by then.

The change of guard in Hyundai management may perhaps give a chaebol steeped in its old ways hope of fresh eyes. But a member of the controlling Chung family still remains atop as executive vice chairman. Sprinkling money on tech startups is part of his investment strategy. That’s likely to continue.

These grandiose and futuristic plans don’t address the more immediate issue of the company’s excess cash, vague strategy or – most importantly – its dismal earnings. They do anything but give Hyundai Motor Group stocks reason to rally. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal.

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