Kia and Yueda increase capital by US$900 million to form a joint venture with a production and sales target of 4 million units in the next decade

On February 7, 2022, Kia Co., Ltd. of South Korea signed an expansion investment agreement with the People's Government of Yancheng City and Jiangsu Yueda Group.

According to the agreement, Kia and Yueda will cooperate to operate a new joint venture with a new registered capital of US$900 million, with a view to increasing vehicle sales and capacity utilization by expanding investment, introducing new models, developing new energy vehicles, and setting up export bases.

Although the specific details such as the name and share ratio of the joint venture company have not been disclosed, the general direction of the organizational structure and development path has been determined. It is reported that the joint venture company will build a new organizational structure, promote localization work, and explore a management system suitable for the Chinese market, and the new name of the company is expected to be announced in April this year.

The new joint venture between Yueda and Kia will carry out equity adjustment and capital increase on the basis of the original Dongfeng Yueda Kia. In March 2002, Dongfeng Motor Group Co., Ltd., Jiangsu Yueda Investment Co., Ltd. and South Korea Kia Motor Co., Ltd. signed the "Joint Venture Agreement for the Implementation of Restructuring", and Dongfeng Yueda Kia was formally established and entered the substantive operation stage. South Korea's Kia, Dongfeng and Jiangsu Yueda hold 50%, 25% and 25% of the shares, respectively.

With the cost-effective and economic advantages of the product, Dongfeng Yueda Kia's initial sales have climbed all the way. In 2016, Dongfeng Yueda Kia's annual sales reached 650,000 vehicles, the highest performance in history. However, as China's auto market gradually enters the stock market, Dongfeng Yueda Kia is facing a "pinch" from mainstream joint venture car companies and independent car companies, and the advantage is no longer there. Against this backdrop, the brand's sales fell sharply the following year to about 360,000 units, a year-on-year decline of 45%. By 2021, Dongfeng Yueda Kia will sell only 152,000 vehicles.

According to the 2021 semi-annual financial report released by Yueda Investment, dongfeng Yueda Kia's operating income during the financial reporting period was 7.13 billion yuan, down 36% from 11.12 billion yuan in the same period of the previous year, and the net loss attributable to the parent company was as high as 1.37 billion yuan, an increase of 28% over the same period of the previous year, and the performance was not optimistic.

In December 2021, Dongfeng transferred 25% of the equity of Dongfeng Yueda Kia for 297 million yuan, officially withdrawing from Dongfeng Yueda Kia, and the joint venture company changed from a three-party shareholding to a two-party shareholding of Yueda and Kia. Some people believe that dongfeng Yueda Kia's sales decline and serious losses are the main reasons for Dongfeng's decision to withdraw. In addition, due to the low shareholding ratio of Dongfeng and the lack of voice in the operation and management of the joint venture company, the resource investment is not active, and finally chooses to divest this "negative asset".

Negotiations on Dongfeng's withdrawal of shares began in mid-2021. The three shareholders of Dongfeng Yueda Kia, Dongfeng Company, Jiangsu Yueda and South Korea's Kia, have negotiated to re-evaluate the cooperation method. Among them, Kia wants to further expand the shareholding ratio, dongfeng believes that the joint venture company is "unprofitable", the three parties reached an agreement, signed a memorandum of withdrawal of Dongfeng company in Wuhan in August, and formally completed the equity transfer at the end of the year.

With the relaxation of foreign ownership restrictions on passenger car manufacturing in 2022 and the withdrawal of Dongfeng Group, Kia hopes to reverse the decline in development in China and revitalize sales to achieve the goal of "more than 4 million units in China in the next ten years". Liu Changsheng, general manager of Dongfeng Yueda Kia, said that the new joint venture company has opened new changes from within, including unified brand image, electrification strategy landing, organizational structure adjustment, and the introduction of high-quality products.

First of all, Kia will focus on promoting the introduction of global strategic models and new energy vehicles, especially accelerating the transformation of electrification. It is reported that the new models listed by Kia this year will be equipped with a large number of safety configurations and new technology configurations to further enhance product performance and market competitiveness, and together with models on sale such as Jawa and Zhipao Ace, we will improve the model lineup. From next year to 2027, starting from the new pure electric vehicle EV6, Kia will launch a new electric model in the Chinese market every year, gradually building a new EV matrix of six electric vehicles.

In addition, the joint venture will build a new organizational structure, establish an innovative organizational culture, and accelerate localization. Kia insiders told the media that the brand will accelerate the landing of the 'Global Kia' image in the Chinese market, and form a more efficient decision-making process through the adjustment of the frame, promote the development of various businesses, and start again in the Chinese market." In the future, Kia will continue to deepen its efforts in the Chinese market and explore the most suitable management system for the Chinese market.

As Kia's only production base in China, Jiangsu Yancheng will continue to serve as an important hub for Kia's production and export. At the same time, the Yancheng government said that it will fully support Kia to expand sales in the Chinese market and support the export trade of Kia's Yancheng plant to help it achieve its ten-year production and sales target of 4 million units.

According to the data, in 2021, Kia Motors' global sales volume was 2.777 million units, an increase of 6.5% over the previous year; in 2022, Kia set its full-year sales target of 3.15 million units. With the establishment of the new joint venture, the South Korean automaker is bound to seek more incremental opportunities from China through a series of localization initiatives. However, at present, China's automobile competition is becoming more and more fierce, the market tends to be centralized, and there is still great uncertainty about whether kia brands can get rid of the cost-effective label in one fell swoop and return to the mainstream market.