Reuters recently reported that Hyundai Motor Co. plans to build a new plant in China for an estimated 1 trillion won ($926.48 million). The move is the first major overseas expansion of the automaker in over two years.
Hyundai and its affiliate Kia Motors Corp. are building the latest facility in Chongqing to safeguard their share of the Chinese market.
“Considering China’s future demand growth outlook, we need to build a new plant to maintain our stable market share of 10 percent in China,” Hyundai confirmed in a statement.
China is considered the biggest car market in the world, and is currently the largest market for both Hyundai and Kia. The country accounts for more than a fifth of the automaker’s global sales in 2013. Both brands sold 1.58 million units in China last year, an 18 percent increase over the previous year. This is the first time annual sales exceeded 1 million units in the country.
Hyundai, South Korea’s biggest automaker and the world’s fifth-largest car manufacturer, faces tough competition in China. Japanese automakers Toyota Motor Corp. and Nissan Motor Co. both boasted growth in sales in the country, while General Motors Co. and Volkswagen AG are also boosting production there.
With tough competition in China and slow sales in the United States and Europe, Hyundai is prompted to defend its market share through expansion. As per the data gathered by Bloomberg, Hyundai sold 720,783 vehicles in the U.S. in 2013.
The new plant will be Hyundai’s fourth in China. The first three production facilities, which are located in Beijing, were built through a joint venture with Beijing Automotive Industry Holding Co. Ltd. Production is expected to start in early 2016.
According to the automaker, Hyundai Motor Group chairman Chung Mong-koo will sign a preliminary agreement today with the government of Chongqing city, which is located in southwestern China, to explore the possibility of building a facility there. The funds for the construction of the plant will be sourced from the joint venture.
The fourth production plant is expected to increase Hyundai and Kia’s combined China capacity to 2.3 million vehicles annually.
A source said that while the Seoul-based company seeks to break ground on the facility this year, the plan is still subject to approval of the central Chinese government.
It has been a while since Hyundai group made a move to expand abroad. The last time Hyundai or Kia reported a new production facility was in 2011. Back then, Kia revealed the plan to build a third factory in China. That factory is currently being constructed, and is slated to be finished this year.
The company chose to prioritize improving the quality of their products over expanding overseas to avoid the recalls that tarnished the reputation of Toyota. The Japanese automaker recently agreed to a $1.2 billion settlement with the U.S. government over the unintended acceleration-recalls in 2009 and 2010.
Analysts speculate that Hyundai or Kia may consider building additional production plants not only in China but also in other countries such as the United States to meet demand as well as further secure its market share.