The gamble of new energy, whether Kia can bet right.
Text/Shanshan Xu
At the end of last year, Dongfeng Motor officially withdrew from the joint venture company Dongfeng Yueda Kia, which changed from a three-party joint venture in the past to two companies, Yueda and Kia. Recently, the Sino-Korean joint venture car company has come out with new news.
On February 7, Kia signed an expansion investment agreement with the People's Government of Yancheng City, Jiangsu Province, and Jiangsu Yueda Group to reorganize Dongfeng Yueda Kia into a new joint venture.
According to the agreement, the new joint venture plans to increase its capital by US$900 million and increase vehicle sales and capacity utilization by expanding investment, introducing new models, developing new energy vehicles, and setting up an export base.
What is particularly noteworthy is that Dongfeng Yueda Kia insiders pointed out in an interview with the media that in the future, the new joint venture company will be supported by Yueda Group, while focusing on Kia operations to disseminate Kia brands and products to the outside world. Kia said it would unveil the new name and logo of the joint venture at the Beijing Auto Show in April this year.
Although Kia did not elaborate on the capital increase and the equity adjustment of the new joint venture, the move may represent a bet on China's new energy vehicle market, and Yancheng is expected to become Kia's manufacturing base in China.
Eye-catching global achievements are struggling in China
In fact, Kia Motors' business in China in recent years can be described as "struggling".
According to the data released by the Association, in the first 11 months of 2021, Hyundai and Kia's cumulative sales in the Chinese market were 349,000 units and 141,000 units, respectively, down 21.5% and 28.3% year-on-year, and the market share was only 1.9% and 0.8%. At the same time, in the annual sales TOP15 list, the Korean car pass fell on the list.
As one of the five largest car companies in South Korea, Kia's sales performance in the global market is still outstanding. In January, Kia's global sales were 212,800 units, down 5.7% year-on-year, while domestic and overseas sales were down 10.7% and 4.6% respectively. In the shadow of the lack of cores, Hyundai and Kia's eco-friendly vehicles sold more than 12,800 units in South Korea, an increase of 8.3% year-on-year.
According to Kia's recent annual results report, the preliminary verification of 2021 operating profit was 5.0657 trillion won (about 26.72 billion yuan), an increase of 145.1% year-on-year, the highest record since 2010. Sales of 69.8624 trillion won, up 18.1% year-on-year, also hit a record high.
China is the world's largest auto market, but Kia is losing ground here. In the early days, there were many Korean media that one of the culprits of Kia's dismal sales data was the THAAD entry into South Korea.
It is clear that Kia's sales in China have continued to decline in recent years, and its market share has been continuously eroded.
Last year, Kia set a goal of selling 255,000 units a year, but it still didn't come to fruition. In fact, the reason is that the influence of Korean cars in the high-end market is far less than that of Japanese and Germans; in the low-end field, its price and configuration are competed by Chinese independent brands, and the competitiveness of Kia's product portfolio needs to be further improved.
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With the lifting of the restrictions on the shareholding ratio of joint venture car companies, some foreign brands are eager to move. Earlier, news of Kia's intention to increase the joint venture's share ratio had gone away. After the official departure of Dongfeng Motor, kia's equity increase is basically a matter of certainty.
According to South Korean media reports, a Kia spokesman said Dongfeng Motor sold its 25 percent stake in the joint venture to Jiangsu Yueda Group last year, increasing the latter's stake to 50 percent. The statement also said that Kia plans to increase its stake.
Judging from the current information, kia has a high probability of taking the lead in the new joint venture company for two main reasons. The first is that Jiangsu Yueda's investment in the automotive business continues to lose money, requiring experienced car companies to lead the operation and improve profitability; the second is that Kia has decided to increase investment in China and lead the electrification revolution.
According to the 2021 semi-annual report released by Jiangsu Yueda Investment, the company's net loss reached 352 million yuan, compared with a net loss of 346 million yuan in the same period last year, and the net cash flow from operating activities was negative 126 million yuan, compared with negative 185 million yuan in the same period last year.
According to the data, since 2018, the automobile business in which Jiangsu Yueda Investment Parent Company Jiangsu Yueda Group participated has always been in a state of loss, and in 2020, due to the large loss of the automobile sector, the company's investment income has dropped sharply, and the net profit has dropped significantly year-on-year. At present, Yueda Group has participated in Huaren Express and China Automobile Dafeng TestIng Ground, and actively laid out emerging industries such as automobile new energy and automobile testing, but the operating data urgently needs to be improved.
For Kia, the trend of electrification transformation may reverse its disadvantage in China.
According to the plan, Kia will launch a new electric vehicle every year starting from the EV6, an exclusive electric vehicle launched in China next year, and is expected to launch 6 electric models in China by 2027. According to a statement disclosed, Kia plans to recruit more employees locally in Yancheng, while investing more in marketing and advertising.
In the face of rapidly changing market demand, as well as new car-making forces that can quickly grasp market trends, Kia's pressure will not be too small. In Kia's medium- and long-term strategy "Plan S", the annual sales of eco-friendly models will reach 1.6 million units in 2030, and the Chinese market will account for a few percent, perhaps in the restructuring progress of these two years.