Hyundai Motor Group recently announced its decision to divest its entire stake in its car manufacturing plant in Russia, a significant move that marks the end of a decade-long operation. The decision to sell its shares in Hyundai Motor Manufacturing Russia in St. Petersburg, along with a General Motors plant acquired in 2020, was approved by the carmaker’s board of directors. The move comes in the wake of Russia’s invasion of Ukraine, which prompted the temporary shutdown of the plant.
Reason for Divestment: Hyundai Motor Group’s official cited the ongoing circumstances as the reason behind the decision to divest. The company reviewed various options and deemed it appropriate to sell at this juncture. Among interested local companies, Art-Finance emerged with the most favorable bid, leading to the decision.
Closure due to Geopolitical Situation: The Russian plant, which commenced operations in 2011, has faced closure since March of the previous year following Russia’s invasion of Ukraine. The undisclosed details of the deal are currently under negotiation between Hyundai and Art-Finance. Despite the divestment, Hyundai commits to continuing after-sales services for vehicles sold within Russia.
Production Capacity and Performance: The Russian plant, Hyundai’s sixth overseas production base, boasted an annual capacity of 200,000 units and featured models like Hyundai Solaris and Creta, along with Kia’s Rio. In 2021, it produced 234,000 units, holding a 24 percent market share in Russia. The acquisition of GM’s plant in 2020 was aimed at enhancing Hyundai’s production capacity to an estimated 300,000 units annually. However, the conflict resulted in a drastic decline in production, with only 44,000 cars manufactured last year and none this year. Worker layoffs occurred, and remaining employees were placed on paid leave.
Impact of Geopolitical Tensions: The ongoing geopolitical tensions have led to several global automakers exiting Russia, including Toyota and Volkswagen. Hyundai remained among the few foreign car brands operating in the country. However, the uncertainty resulting from geopolitical situations and sustainability concerns prompted Hyundai’s decision to divest.
Market Dynamics and Future Strategy: Lee Ho-geun, a car engineering professor, highlighted the volatile nature of markets influenced by political factors, impacting the automotive industry in countries like China and Russia. Despite divesting from the manufacturing facility, Hyundai cannot disregard the significance of the Russian market. Lee suggested that competition from Chinese auto companies, particularly in the low-cost vehicle segment, poses challenges for Hyundai. Focusing on premium-level brands like Genesis and introducing high-quality models aligns with the strategy to compete effectively in the Russian market.
In essence, the decision to divest its Russian manufacturing plants reflects Hyundai Motor Group’s strategic response to the challenging geopolitical landscape and its commitment to reorient its focus in the face of evolving market dynamics, especially in a critical market like Russia.