China's Dongfeng Group Ends Partnership with Kia Motors After 20 Years

Dongfeng Announces Sale of 25% Stake in Dongfeng Yueda Kia...Poor Sales Behind Stake Sale
Kia to Pursue High-End Electric Vehicle Brand Strategy After Acquiring Dongfeng Stake

[Asia Economy Beijing=Special Correspondent Jo Young-shin] China Dongfeng Motor Group (hereinafter Dongfeng Group) has officially announced its separation from South Korean Kia Motors. It has been 20 years since the establishment of the Dongfeng Yueda Kia joint venture in 2002.

Chinese economic media Beijing Business Daily cited a disclosure from the Shanghai United Property Rights Exchange, reporting on the 22nd that Dongfeng Group has started the transfer process of its 25% stake in Dongfeng Yueda Kia. Rumors about Dongfeng Group selling its stake in Dongfeng Yueda Kia have been circulating among Chinese media since early this year.

[Image source=Yonhap News]

The sale price of the stake is 297 million yuan (approximately 55.2 billion KRW), and the transfer transaction date is set by the 16th of next month. The payment condition is a lump-sum payment. Dongfeng Yueda Kia is jointly owned with Kia Motors holding 50%, and Dongfeng Group and Jiangsu Yueda each holding 25%.

Beijing Business Daily explained that the separation between Dongfeng Group and Kia Motors is closely related to the sales slump of Dongfeng Yueda Kia over the past two years. The media reported that Kia Motors and Dongfeng Group initially focused on a cost-effective vehicle portfolio when entering China, and at one point, the joint venture was considered a successful model.

In fact, Dongfeng Yueda Kia sold 650,000 vehicles in 2016, growing to rank 11th in sales within China. However, sales declined every year after peaking in 2016, with only 110,160 vehicles sold cumulatively in the third quarter of this year. Facing rejection from Chinese consumers, the first plant even ceased operations last year in an extreme situation.

Beijing Business Daily pointed out that the causes of failure were sales decline and overproduction, and Dongfeng Yueda Kia recorded a loss of 4.75 billion yuan (approximately 882.8 billion KRW) last year. Dongfeng Yueda Kia owns three factories in Yancheng, China, with an annual production capacity of 900,000 vehicles.

Yan Jinghui, a member of the China Automobile Dealers Association, said, "Dongfeng Group's withdrawal aligns with Dongfeng's long-term strategy, helping the group focus on developing its own brand," emphasizing the rationale behind Dongfeng Group's exit.

Beijing Business Daily noted, "The three joint ventures have experienced internal friction during management, and the company has been considered inefficient, which is a major cause of poor management."

Chinese media including Beijing Business Daily attribute Dongfeng Yueda Kia's poor performance to overproduction and discord among shareholders, but in reality, it originated from the Chinese government's 'THAAD (Terminal High Altitude Area Defense) retaliation' in 2017. Not only Kia Motors but also Hyundai Motor Company saw their businesses in China collapse after THAAD.

Beijing Business Daily reported that the 25% stake held by Dongfeng Group is to be acquired by South Korean Kia Motors, which will increase its stake by 25% and further expand its control over the joint venture. The media also forecast that Kia Motors plans to launch 11 electric vehicle models by 2026, positioning itself as a global electric vehicle brand in the future.

Ryu Chang-seung, General Manager of Dongfeng Yueda Kia, said, "China is leading the global electric vehicle market," and added, "Dongfeng Yueda Kia plans to release electric vehicle models every year to meet diverse Chinese demands." Ryu also stated, "Going forward, Dongfeng Yueda Kia will focus on high-end brand strategies rather than entry-level cars," and "We plan to continuously invest in new products and new technologies for this purpose."