Building automobiles takes more than just creating an assembly line and bolting a bunch of parts together. It also takes a sophisticated understanding of foreign currency trading and a sharp eye on politics. Hyundai is being taught a lesson about political realities right now as it tries to ramp up EV production in China — the world’s largest EV marketplace, thanks to aggressive policies that favor what China refers to as “new energy vehicles.”
China has some pretty steep tariffs on imported cars, making it vital for any manufacturer looking to do substantial business there to build its cars in-country. But that’s not all that simple. China does not allow foreign companies to just come in and build whatever they like. First, they must partner with a local company.
Hyundai has chosen Beijing Auto Group, which is part of the BAIC Group, to be its Chinese partner. That’s seems like a pretty smart choice, since BAIC is owned by the Chinese government. Business relationships don’t get much cozier than that. Nevertheless, Hyundai sales in China have been disappointing and it has invested heavily in a new plug-in hybrid version of the Elantra and the Sonata for the local market.
Hyundai has high hopes that both cars will give a strong boost to its Chinese sales. Hyundai’s chief financial officer said recently his company expects sales of the Yeudong EV — known elsewhere as the Elantra — to establish Hyundai as a market leader once again. Sales exceeded 200,000 units a year for several years but have slipped below 25,000 annually recently.
Hyundai had selected LG Chem, another Korean company, to supply the batteries for its new EVs. LG Chem supplies batteries and many interior components for the Chevy Bolt. But suddenly a chill wind blew over Hyundai’s Chinese operations. The government ruled the LG Chem batteries did not meet Chinese standards. It also put the kibosh on using batteries by Samsung SDI. Hints were dropped that if Hyundai switched to a Chinese battery supplier, all would be forgiven.
So Hyundai dutifully struck a deal with Contemporary Amperex, a Chinese battery company that has come from nowhere a few years ago to be China’s fastest growing battery company. Contemporary Amperex has established a European subsidiary with offices in France, Germany, and Sweden. It plans to build a battery production facility in Europe in the near future and reportedly is supplying BMW already.
The Yeudong EV is now scheduled to enter production Beijing Hyundai using battery modules supplied by Contemporary Amperex, according to sources in China. The Sonata EV was also scheduled to begin production this year, but that has been pushed back to 2018. The new batteries supplied by Amperex do not fit the chassis as designed by Hyundai, so modifications must be made.
Why has Hyundai knuckled under? Simple. China now requires that 8% of all new cars from any manufacturer must be “new energy vehicles.” If Hyundai didn’t play ball, none of its cars would be electrified and it would be banned from selling cars in China.
That is not the end of the story. It may not even be the half of it. Last year, Korea elected to deploy the US built Terminal High Altitude Aerial Defense missile defense system. That technology could be used to guard South Korea against missiles launched from China. Shortly after that decision was made, China rules that LG Chem and Samsung SDI batteries no longer met Chinese standards. The government has also slashed the number of visitor visas for South Korea and halted a multibillion-dollar commercial complex South Korea’s Lotte Group is building in the city of Shenyang.