Hyundai increases EV investment to $28 billion to reduce China operations

SEOUL, June 20 (Reuters) – Hyundai Motor will increase its average annual investment in electrification by nearly two-thirds, spending $28 billion over the next decade, and further restructure its struggling China business as part of a strategy to to increase electric vehicle (EV) sales.

At its annual investor day on Tuesday, the South Korean automaker, the world’s No. 3 auto group by sales along with its affiliate Kia ( 000270.KS ), said it also raised its EV sales target to 2 million units by 2030 from 1.87 million .

That will represent around a third of total vehicle sales, up from 8% expected this year.

“With global demand for electric vehicles growing faster than market forecasts, Hyundai Motor is increasing its sales target for 2030,” it said in a statement.

To achieve the goal, Hyundai ( 005380.KS ) plans to increase local production of electric cars in its three key markets – the United States, Europe and South Korea – as more countries launch incentives for locally produced vehicles.

In the US, the largest market, EV production will account for three-quarters of total vehicle production there by 2030 from just 0.7% now.

Hyundai Motor CEO Jaehoon Chang said the automaker will consider making its vehicles more easily compatible with the charging standard Tesla ( TSLA.O ) operates in North America.

While it raised EV sales targets in its main markets, Hyundai said it would further restructure its struggling China operations to focus on profitability.

Chang told investors that China, the world’s largest car market, had been very profitable until 2016 but now was the biggest risk as the carmaker had lost share to domestic rivals.

Hyundai sold one factory in China in 2021 and plans to sell two more, including one that was closed last year and another that it plans to close this year. The remaining two facilities will be further rationalized and used for export to emerging markets.

The product range in China will also be reduced to eight from 13, with a focus on high-end and SUV models, including the Genesis luxury brand.

To increase battery competitiveness and develop next-generation batteries, Hyundai plans to invest 9.5 trillion won ($7.4 billion) over the next 10 years.

Hyundai said it plans to introduce competing lithium-iron-phosphate (LFP) batteries, a cheaper alternative to the lithium-ion batteries that have spurred EV adoption in China, for the first time around 2025.

Its larger rival Toyota ( 7203.T ) also announced last week a plan to start using LFP batteries.

Hyundai aims to source more than 70% of its batteries through joint ventures by 2028 and beyond. Other plans include cooperation with specialized companies and startups, as well as the establishment of joint ventures with battery companies to ensure stable supply.

“Joint research and equity investments in startups to accelerate the development of next-generation batteries are also underway,” the company said.

Hyundai said it aimed to achieve an operating margin of 10% or higher in the EV business by 2030.

The 35.8 trillion won ($28 billion) investment in electrification is part of a 109.4 trillion won budget Hyundai plans to spend until 2032.

($1 = 1,285,2400 won)

Reporting by Hyunsu Yim and Heekyong Yang; Written by Miyoung Kim; Editing by Ed Davies, Jacqueline Wong and Conor Humphries

Our standards: Thomson Reuters Trust Principles.