[Asia Exclusive] "Yangsan-type Low Voltage Electrical Equipment, Knocking on Global Markets Starting with the US"

Two-Year Deficit Turned Profit in 3 Months
Increasing Added Value of Ultra-High Voltage Transformers
Next Year's Goal: Aggressive Business Expansion Plan

Targeting Electric Vehicle Charging Infrastructure Market
Promoting Smart Energy Solutions
Companies Must Prepare Now for the Next 10 Years

Cho Seok, President of Hyundai Electric, is explaining the company's achievements this year and the management goals for 2021 in an interview with Asia Economy at Hyundai Electric's Bundang Office in Gyeonggi-do on the 3rd.

Cho Seok, President of Hyundai Electric. Photo by Hyunmin Kim kimhyun81@

[Interview = Asia Economy Lee Eun-jung, Head of Industry Department; Summary = Reporter Lee Ki-min] "This year, we achieved a turnaround to profitability at a faster pace than expected. Next year, we plan to expand our high value-added ultra-high voltage equipment sector and aim to enter the global market with mass-produced low-voltage equipment. We will also transform into a future industry energy solution provider."

Cho Seok, President of Hyundai Electric, who is approaching his first anniversary in office, remained humble throughout the interview but exuded confidence while explaining his management vision. Hyundai Electric, which spun off from Hyundai Heavy Industries' Electrical and Electronics Division in 2017, recorded losses for two consecutive years starting in 2018. The accumulated losses over the past two years exceeded 250 billion KRW. However, this company achieved an operating profit of 4.3 billion KRW in the first quarter of this year despite the unexpected variable of COVID-19, marking a successful turnaround to profitability. This was a miraculous achievement accomplished within just three months after President Cho took office on December 26 last year. Hyundai Electric has been growing rapidly, with cumulative operating profits exceeding 52 billion KRW through the third quarter of this year. Once considered the black sheep within the Hyundai Heavy Industries Group, Hyundai Electric is now reborn as a swan.

While this year focused on maximizing profitability, from next year onward, the company plans to pursue aggressive expansion based on this foundation. President Cho’s vision is to maximize sales and profits by expanding the supply of high value-added ultra-high voltage equipment and to newly enter the global market with mass-produced low-voltage distribution equipment. Additionally, the company will promote smart energy solutions as a future business. President Cho emphasized, "We need to prepare not only for this year but also for 10 years from now, starting today."

- It seems that the environment was challenging both when you served as President of Korea Hydro & Nuclear Power and when you took office as President of Hyundai Electric. However, since your appointment, Hyundai Electric’s performance has improved and continues to develop.

▲ Hyundai Electric recorded operating losses of about 140 billion KRW in 2019 and 90 billion KRW in 2018. In contrast, this year, the company posted an operating profit of 52 billion KRW through the third quarter, and this trend is expected to continue into the fourth quarter. The goal for this year was to turn a profit, and we exceeded that target. We achieved it faster and by a larger margin than expected.

- You must have set management goals for next year as well.

▲ First, despite difficult conditions this year, we focused on profitability and achieved results. The management goal for next year is, first, to improve the quality of our core business?ultra-high voltage transformers, where we hold the world’s fifth-largest market share?and increase added value. The recent trend demands high value-added power equipment. Customers request "use eco-friendly gases" and "use eco-friendly insulating oils." Although the function is the same, they are willing to pay more for products that do not emit noise or harmful gases. To meet this demand, we must compete with high value-added technology. Our goal in the ultra-high voltage sector is to increase added value and sell under better conditions.

Second, we plan to strengthen the low-voltage equipment sector, which operates at lower voltages. Products such as low-voltage circuit breakers, commonly called "thick toad houses," and low-voltage motors are mass-produced items, so price competitiveness is essential. Next year, we plan to expand the mass-produced low-voltage equipment business and enter overseas markets. Our primary target market is the United States. Power equipment standards vary by country, and the U.S. market is the most open in terms of standards. We already export a lot to the U.S. market but plan to be more aggressive. The Southeast Asian market is similar. The Chinese market is challenging due to many domestic companies, but since it is a large market, we intend to take on the challenge.

Lastly, smart energy solutions, which are software-based, are a newly prepared area. Typically called energy solutions, this involves optimally arranging all power equipment within a unit factory. To find an energy solution that creates maximum efficiency at minimum cost, one must understand the energy consumption patterns of factories, villages, and homes. The platform that creates these solutions itself is a business. It designs the system and ensures the necessary hardware follows. Preparing now will allow us to emerge as a solution provider 10 years from now.

- Next year, the U.S. government will change. Since the policy is expected to shift toward eco-friendliness, the business direction may need some adjustments.

▲ We are continuously monitoring the situation. The basic direction might be a return to the 2015 framework. The term "eco-friendly" is broad, but President Moon Jae-in referred to it as carbon neutrality. Eco-friendliness has a broader meaning, but greenhouse gas reduction is considered equivalent to eco-friendliness. The 2015 Paris Climate Change Agreement is a recent commitment, but when former U.S. President Donald Trump announced withdrawal, momentum was lost. President-elect Joe Biden is expected to declare re-entry immediately upon taking office, and international conferences will resume. While agriculture and forestry are involved, from an electricity perspective, reducing greenhouse gases will require changes in power generation sources toward carbon-free options. It is predicted that using renewable energy or distributed power sources will reduce carbon dioxide emissions.

Hyundai Electric, keeping these points in mind, plans to expand the supply of eco-friendly products applying new technologies and actively practice environmental, social, and governance (ESG) management at the corporate level to fulfill social responsibility. Regarding the U.S. market, as the easing of the U.S.-China trade dispute is expected to somewhat reduce the indirect benefits for Korean companies, we plan to utilize our Alabama corporation to maintain our existing transformer market while transferring design capabilities for eco-friendly products to increase high value-added eco-friendly products. Additionally, we will use the Atlanta sales corporation, established earlier this year, as a forward base to expand the distribution network for distribution equipment and extend our reach to South America.

- As electric vehicle development and production accelerate, charging infrastructure is expected to become an essential facility. Hyundai Electric briefly mentioned its approach to the electric vehicle charging infrastructure market in its third-quarter earnings release. What are Hyundai Electric’s specific plans?

▲ It is indisputable that electric vehicles will become mainstream in the near future. Recent research indicates that the electric vehicle market will grow at an average annual rate of 29% over the next 10 years, and by 2030, electric vehicles will account for about 32% of the total new car market. Amid this explosive growth, we believe there are areas where we have strengths and can participate. We are internally reviewing various fields, including charging infrastructure construction, production of related equipment such as batteries, and charging station operation.

- What is the management philosophy and goal you want to achieve at Hyundai Electric?

▲ The company’s goal is clear: to generate profits and create jobs. However, the process of achieving this clear goal is not simple. To continuously generate profits and create jobs, we must grow, and to grow, we must watch market changes closely and act proactively. In other words, if we do not constantly change, we cannot achieve the company’s goals.

Until now, our company has faithfully played the role of a "Total Solution Provider" supplying power equipment. Now, the market demands that we become a "Smart Solution Provider" offering optimal solutions encompassing safety, efficiency, cost, and environment. I believe that successfully fulfilling this changed role is the CEO’s mission and goal.