Hyundai Loses Ground to Japanese Rivals in China

Hyundai and affiliate Kia's combined market share in China fell to a dismal 2.7 percent in 2021 with only 530,000 cars sold in the world's largest market. Hyundai had soared to the No. 2 spot in 2009 but had fallen to 12th place last year, while Japanese rival Toyota rose to third place after Volkswagen and GM.

Toyota's share of China's market doubled from 4.5 percent in 2016 to 8.4 percent last year. Over the same period, Honda's share rose from 5.4 percent to 7.8 percent. The Japanese automakers achieved that feat despite fervent anti-Japanese sentiment in China. Their sales were hit when Tokyo intensified a diplomatic spat with Beijing over the Senkaku or Diaoyu Islands, but compared to China's unofficial boycott of Korean products over the deployment of a Terminal High-Altitude Area Defense battery here in 2017, Japan seems to be less vulnerable to such bullying.

◆ Price Advantage

Japanese carmakers have several advantages over their Korean rivals, not least price. Hyundai's compact Elantra sedan (Avante in Korea) does not even rank among the top 10 models in the segment in China because its price tag is W18.4 million to W25 million, which is almost the same as Toyota's Corolla sedan (US$1=W1,198). Hyundai's Tucson compact SUV costs W35 million to W42.3 million in China, which is similar to Toyota's Wildlander (or RAV 4) at W32.2 million to W42.5 million.

Cho Chul at the Korea Institute for Industrial Economics and Trade said, "Chinese consumers consider German and Japanese cars high-quality, so with very little price difference, they are opting for cars with a more premium image."

In the second-hand market, the price of a three-year-old Hyundai Sonata depreciates 50 percent compared to a new one, while a comparable Toyota Camry retains 78 percent of its value and a Honda Accord 75 percent.

"There's a widespread perception in China that Hyundai starts offering its models on discount six months after release," an insider said. The Chinese market for low to mid-priced cars, which used to be dominated by Hyundai and Kia, is now controlled by local brands, and China's No. 1 automaker Geely sells its compact sedan for W13.1 million to W16.7 million, which is more than W5 million less than the Elantra.

◆ Excessive Expansion

When it was popular in China, Hyundai expanded aggressively, which resulted in bloated production capacity and weakened competitiveness.

Hyundai opened its first factory in China in 2002 and built a second one in 2008 and a third one four years later, becoming capable of rolling out 300,000 to 450,000 cars a year. The output volume rose to 1.8 million in 2014 when combined with Kia. They should have stopped there, but instead they built two more factories to sell more cars in China's inner regions. That resulted in annual output capacity rising to 2.7 million cars in 2018, but Hyundai’s sales peaked at 1.79 million in 2016.

Output capacity has now fallen to 2.2 million cars after it sold some factories recently, but the excess production issue remains.

Around 120 parts suppliers who also set up factories in China helped Hyundai boost output quickly in the early days, but their price competitiveness waned and Hyundai now pays more than Toyota or Honda for parts.

Park Seung-chan at Yongin University said, "Hyundai belatedly boosted parts supplies from Chinese suppliers, but they sold parts at 30-percent higher prices than they give them to Chinese automakers. That's why Hyundai was unable to make cars cheaper than local players."

And Jeon Byeong-seo, an expert for the Chinese market, said, "Hyundai cars were popular when China's per-capita GDP was US$5,000 to 6,000, but it failed to come up with a new strategy when per-capita GDP surpassed $10,000."