Pillar of growth

Pillar of growth

Hyundai's Light Vehicle production appeared to be trouble-free until 2014, why did this change?

Korean Analytics Team

26 June 2018

Hyundai global light vehicle production

Hyundai SUV-ism: a new pillar of growth

Hyundai Group’s growth seemed trouble-free until 2014, at which point it produced in excess of 8 million vehicles globally. Having said that, its aggressive pursuit of internationalisation exposed it to a fair amount of mocking, but it weathered the storm. Clouds then started to gather in 2015, as a few hiccups began to surface. This came to a head in 2017, when a sharp downturn in its Chinese sales coincided with the eruption of the diplomatic tension between China and Korea over the US missile-defence system in Korea.

Hyundai global light vehicle production

Hyundai stated at the time that political turmoil was hardly a factor within its control and ascribed the whole debacle to ill-fate. Granted, any company could potentially experience a similar incident, and Hyundai is certainly not the first foreign business to be on the receiving end of China’s wrath. In 2012, for instance, Japanese brands suffered substantial declines in the Chinese market as anti-Japanese sentiment flared over a territorial dispute. In our view, however, misfortunes of this kind in any given market are only ever half the story at best.

Since 2010, the most prominent development in global consumer taste in the automotive industry has been the inexorable rise of the SUV bodystyle. The segment’s ratio of the global market surged from around 10% in 2010 to roughly 30% in 2017. For the first time in their history, SUV sales have been outselling Passenger Car sales in the US since 2016, while in China, volumes surpassed 10 million units last year. Even Western European consumers – where the mayor of a major city once declared that all SUV drivers were “complete idiots” – appear to be equally enamoured with the bodystyle. Between 2015 and 2017, sales soared by 38%, compared to just 9% for the overall Light Vehicle market.

“the Kona and Stonic will be joined by five new SUVs in the period to 2019, by which time its SUV line-up will be complete”

Against this backdrop, Hyundai Group’s product line-up could hardly be described as being in step with this evolving taste trend, particularly in developed markets like the US and Western Europe. In fact, until it launched two new Sub-Compact SUVs, the Hyundai Kona and Kia Stonic, in 2017, the group’s portfolio was devoid of any models in this key sub-segment, which is currently spearheading SUV growth in Europe. Until the launch this year of the Hyundai Kona, its SUV portfolio in the US market was limited to Compact and Midsize models.

According to Hyundai Group’s SUV roadmap announced in 2017, the Kona and Stonic will be joined by five new SUVs in the period to 2019, by which time its SUV line-up will be complete, covering all segments, from A (with the Hyundai QX1) to Premium (with the Genesis JX1). Meanwhile, this fresh product line will be complemented by a new SUV powertrain strategy, which will focus on 48V hybrid in the European market and diesel in the US.

The chances that the group’s upcoming SUV products will be commercial hits are high, in our view, as it has already demonstrated its ability in this arena through the successful launch of both the Kona and Stonic – the two models that kicked off the SUV roadmap. As an interesting sidebar, the fact that the Hyundai Kona came about as a result of a comprehensive global market study illustrates the group’s product-development prowess. The Kia Stonic, in turn, is essentially a jacked-up hatchback promoted as an SUV, thus highlighting Hyundai’s aptitude for clever marketing.

Not so long ago, Hyundai dubbed itself as a “fast follower”, a moniker that did, indeed, hold true until 2015. Since then, however, it has transformed itself from a follower into a leader. Admittedly, the group is, once again, playing catch-up by only belatedly embarking on an SUV expansion programme, but is doing so according to its own ethos. Perhaps best described as “Hyundai SUV-ism”, this approach is set to generate a new pillar of growth, driving Hyundai Group’s status as a global frontrunner.