Hyundai Motor's Unstoppable Momentum- From Record Domestic Investment to U.S. Steel Mill Construction < Video < Article

※ This content was broadcast on the 'Economy ON' program of Yonhap News TV on January 15 (Wednesday) at 4 PM. (Featuring: Kim Kyung-lim, Yonhap Infomax reporter, Hosted by: Lee Min-jae)

[Anchor] What strategic changes are we seeing from Hyundai Motor?

[Reporter] Hyundai Motor Group's recent strategic shift can be summed up as 'Pivot to America'. This indicates their intention to focus on the United States, the world's largest automotive market.

As you may know, Hyundai Motor Group has been moving the center of all its production and sales strategies to the U.S. recently. Everything is centered on the U.S., from appointing a foreign CEO to operating the largest electric vehicle production base.

This becomes even clearer when we look at last year's sales figures. Hyundai and Kia sold a total of 1,708,293 vehicles in the U.S. market last year, up 3.4% from the previous year.

U.S. sales significantly surpass domestic sales. Last year, Hyundai and Kia's domestic sales were 1,245,020 units, down over 6% from 2023. In short, the market center has now shifted to the United States.

Recently, news that Hyundai Steel is planning to establish a local steel mill to supply steel plates to Hyundai Motor Group's U.S. factories has further reinforced the 'Pivot to America' strategy.

[Anchor] Is there a need for Hyundai Steel to establish a steel mill in the U.S.? Why?

[Reporter] From Hyundai Motor Group's perspective, additional steel supply is essential due to the operation of a new large-scale factory. The production target for HMGMA (Hyundai Motor Group Metaplant America) is 300,000 units annually, with plans to increase to 500,000 units depending on demand.

So how much additional steel is needed? Let's break it down. The amount of steel used in producing one electric vehicle ranges from 800kg to 1 ton for a large SUV. This means HMGMA immediately needs about 300,000 tons of steel.

Currently, the problem is that the volume of steel exported to the U.S. by Korean steel companies is subject to quota restrictions. This export quota is about 2.68 million tons.

Considering that the amount of steel used in one electric vehicle is 800kg to 1 ton for a large SUV, the amount of steel imported from Korea in a year is enough to produce about 2 to 3 million vehicles.

However, not all of this exported steel is used for automobile production. In other words, with the current quota restrictions, it's far from enough to meet the 'automotive steel demand'.

[Anchor] It seems they want to procure steel cheaply for finished vehicle production. But there's talk that establishing a steel mill will cost trillions of won. Is it worth it? How about funding?

[Reporter] According to Hyundai Steel's 2024 Q3 final report, the company's consolidated cash assets are about 1.225 trillion won. This is far short of the 10 trillion won estimated by the industry.

The problem is that future cash flow doesn't look very promising either. The securities industry expects Hyundai Steel to have turned to profit with an operating profit of 97.7 billion won in the fourth quarter of last year. The annual operating profit forecast for this year is about 638.9 billion won. In other words, it's not easy for Hyundai Steel to build a steel mill in the U.S. independently.

[Anchor] Couldn't they use corporate bonds or borrowing?

[Reporter] In this case, interest rates could be a stumbling block. Hyundai Steel's credit rating by global credit rating agencies is 'BBB' by Standard & Poor's and 'Baa2' by Moody's. This is not considered very attractive among investment-grade corporate bonds.

While the exact issuance rate varies depending on the company's financial situation and guarantee conditions, we can estimate based on other corporate bonds of the same grade. In this case, an issuance rate in the mid to late 5% range is expected.

Even if they take out a loan, the interest rate level would be similar. If the parent company guarantees the borrowing, they could leverage Hyundai Motor Group's creditworthiness, but this would increase the burden on the parent company.

In the end, if all the necessary funds are raised through corporate bonds or loans, it could result in an annual interest burden of hundreds of billions of won. Based on this year, it means Hyundai Steel might have to use all of its annual operating profit just to pay interest.

Ultimately, the most realistic option seems to be establishing a joint venture (JV) with Hyundai Motor and Kia and raising investment funds together. This would minimize Hyundai Steel's investment burden and allow for stable supply of produced steel plates to Hyundai Motor and Kia's local factories.

This is also a preferred investment method for Hyundai Motor Group, as it can increase the participation of each affiliate while reducing the burden. For example, in the case of 'Motional', Hyundai Motor Group's autonomous driving company, Hyundai Motor, Kia, and Hyundai Mobis have different shareholdings, forming a shareholder structure that jointly develops and takes responsibility.

[Anchor] To summarize, they're building a lineup to produce everything from raw materials to finished vehicles locally to respond to U.S. trade policies. Doesn't this mean they're neglecting domestic business too much?

[Reporter] To alleviate these concerns, Hyundai Motor Group has pulled out the 'largest domestic investment ever' card. On the 9th, Hyundai Motor Group announced a record 24.3 trillion won domestic investment plan. This is nearly 20% higher than the previous year.

Looking at where the investment is mainly concentrated reveals the group's strategy. About half of the 24 trillion won is focused on R&D. The budget allocated to R&D is 11.5 trillion won. Although capital investment is 12 trillion won, which is 500 billion won more, most of this is for converting existing factories to electrification, so R&D can be considered the core.

R&D investment will focus on electrification and eco-friendly vehicle development. This also includes hydrogen vehicle and software-defined vehicle (SDV) development.

First, Hyundai Motor Group plans to focus on developing related technologies ahead of the transition to the hydrogen era. Hyundai Motor Group already holds 7% of global hydrogen electric vehicle (HEV) related patents, showing great interest in the hydrogen energy business. Toyota of Japan holds the most patents, about 20,000 for a single company. Hyundai Motor is right behind.

This year, they plan to focus on research and ecosystem building for hydrogen products and technologies for the HTWO grid solution, including next-generation fuel cell system and hydrogen bus/truck development, and hydrogen charging station construction.

Software-centric vehicle (SDV) development is also accelerating and plans to show results from next year. This is about a year later than Hyundai Motor Group's plan announced in 2022. At that time, Hyundai Motor Group announced that all vehicles would be converted to SDV by 2025. Although it's been delayed from then, we can say they're still trying to move as fast as possible.

[Anchor] Is there a particular reason why domestic investment is focused on R&D?

[Reporter] Hyundai Motor Group is said to be more cautious about technology security. Although they have technology research centers in the U.S., Germany, Japan, China, etc., most of the cutting-edge technologies responsible for the group's future, such as hydrogen and electric vehicles, are conducted at domestic research centers like Namyang. This company policy seems to be why domestic investment is focused on R&D.

(Yonhap Infomax Industry Department Kim Kyung-lim Reporter)

※This content is from the video news covered in the Yonhap News TV Investigation File corner.

klkim@yna.co.kr

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Kyung Lim Kim klkim@yna.co.kr