Why Hyundai Isn’t Really Ready to Take a Ride on Apple’s Car of the Future
(Bloomberg Opinion) -- On Feb. 8, after weeks of speculation about a potential tie-up with Apple Inc. to make the car of the future, Hyundai Motor Co. and sister Kia Motors Corp. said they weren’t in talks with the Cupertino colossus. They walked back an earlier statement that had loosely confirmed discussions. South Korean media had percolated with reports about a tie-up, even touting a potential size for the investment — almost $3.6 billion. The stock price jumped up and down with the news.
An Apple and Hyundai partnership always seemed unlikely. That’s because the South Korean company’s high-flying ambitions didn’t seem to be matched by a real-life performance that fit in with the exacting iPhone maker.
It’s not that Hyundai didn’t have lofty visions of the future. In late 2019, even as its net income margins were thinning and sales slowed, the company said it planned to invest 61.1 trillion won ($51.8 billion) in connected and self-driving cars, among other things, as part of its “Strategy 2025.” The year before, it announced a $6.7 billion plan to boost development of hydrogen-powered vehicles — a technology that is even more advanced than electric-battery powered cars. This year, it said it was investing in a plant in China to produce hydrogen fuel-cell systems.
There are even bolder plans. Hyundai says it is developing a flying car that will carry five or six people within metro cities and hopes to bring it to market by 2028. Group chairman Euisun Chung has said in the past that these air vehicles could be commercialized before advanced self-driving cars. (There isn’t much being discussed about driving regulation for the sky, let alone rules for autonomous cars.) Meanwhile, it made investments in a deep learning, computer vision startup and in a maker of agile and mobile robots.
Goals and targets are good to have, especially for an industry that is dealing with the onslaught of technology and regulation. Investors love them too. However, delivering on them has been the challenging part for Hyundai.
In the mundane reality of the auto market, Hyundai has been plagued by production quality issues, civil penalties in the U.S. and car engine problems. Separately, the firm has recalled thousands of its Kona electric cars with battery cell problems.
The company’s research and development expenses as a portion of net sales remains one of the lowest in the auto industry in spite of the Strategy 2025 investments which are spread across a broad array of expenses over a six-year period . This year, the company plans to spend 8.9 trillion won on capital expenditures, strategic investments and R&D.
The likes of Toyota Motor Corp. and Volkswagen AG are squarely focused on more practical steps into the future – batteries, electric vehicles and the challenge of wide-scale adoption. Only recently has Hyundai pushed electrification, promising to expand its lineup of green cars. (Kia has said it will invest $25 billion in electrification and mobility.)
On the financial front, net income fell 33.5% last year. While it had a better fourth quarter and has managed to sell more of its high-end vehicles, the firm’s global wholesales dropped over 15% in 2020. Operating income from the auto segment shrank while that from the financing business rose. In tough times, the car company has rarely turned to deep, surgical cuts.
It’s time for a reassessment of the car company that’s grounded in reality — for Chung and investors.
Over the six-year period from 2020 to 2025, the company has said itwill invest a total of 61.1 trillion won, "or roughly KRW 10 trillion per year, in R&D and future core technologies to smooth its transition into a Smart Mobility Solution Provider." Of that, 41.1 trillion won "will be allocated for product and capex to enhance competitiveness in existing businesses, while approximately 20 trillion won "will be dedicated to future technologies including electrification, autonomous driving, AI, robotics, PAV, and new energy area."
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.
©2021 Bloomberg L.P.