'Dats Russia' dilemma... Hyundai Motor's Catch-22 Situation

Toyota and Mazda End Production in Russia... Global Companies Continue to Join
Hyundai, with High Market Share in Russia, Faces Difficult Decision Not to Withdraw

Hyundai Motor Russia Factory Exterior.
Photo by Hyundai Motor

[Asia Economy Reporter Yoo Hyun-seok] Japanese automakers Toyota and Mazda have begun ending production in Russia, raising concerns for Hyundai Motor Group. Unlike the Japanese automakers, Hyundai holds a high market share and production volume in the Russian market, making it difficult to give up.

According to foreign media on the 26th, Toyota has decided to cease production at its plant in Saint Petersburg, western Russia, and Mazda has entered discussions with its joint venture partner Sollers.

This is interpreted as a result of the prolonged Russia-Ukraine war. Toyota started production in Russia in 2007, and Mazda began in 2012.

Both companies had already halted factory operations since March or April due to parts procurement issues. Last year, Toyota produced about 80,000 units at its Saint Petersburg plant, while Mazda produced around 29,000 units. Toyota's production there accounted for about 1% of its global output.

Global automakers have already been exiting Russia. French Renault Group sold its stake in Lada (AvtoVAZ), and Ford, General Motors (GM), Mercedes-Benz, and BMW have already suspended exports and sales.

This situation has increased Hyundai Motor Group's concerns. Unlike Japanese automakers, it is not easy for Hyundai to give up on Russia. Hyundai owns a Saint Petersburg plant with an annual capacity of 200,000 units. It produces locally developed strategic models such as the Creta and Solaris, as well as the Rio, which is commissioned by Kia, selling them in Russia and neighboring countries. At the end of 2020, Hyundai acquired the former GM plant locally and planned to increase capacity by 100,000 units starting next year.

In particular, the Russian plant has been a cash cow among Hyundai's overseas subsidiaries. Last year, it produced 234,150 units with an operating rate exceeding 117%. This is the highest operating rate including domestic plants, and production volume ranked fourth among Hyundai's overseas plants (excluding joint ventures in China). Market share is also high. Last year, Hyundai Motor Group sold 205,801 Kia vehicles and 171,811 Hyundai vehicles in Russia, ranking second and third after AvtoVAZ. Market shares were 12.3% and 11.2%, respectively.

However, due to the Russia-Ukraine war, operations have been suspended since the end of March, causing sales to plummet. In January and February alone, the Russian subsidiary sold 17,649 units (15,762 domestic sales and 1,887 exports) and 17,402 units (14,817 domestic sales and 2,585 exports), respectively. In March, sales dropped to 3,708 units (2,970 exports and 738 domestic sales). By June, sales fell below 1,000 units to 862 (1 domestic sale and 861 exports), and in August, sales finally reached zero. A Hyundai official said, "The Russian plant stopped operations in March, but the sales figures recorded were not from production. It can be assumed that all existing inventory has been depleted."

Market share is also rapidly declining. Last month, Kia ranked second in market share, but sales decreased by 76.8% compared to the same month last year, and market share dropped by 9.6 percentage points from 15.6%. Hyundai also fell from third to fifth place.

Hyundai is continuously monitoring the local situation. A Hyundai official explained, "There have been no particular issues since the suspension of operations. We are continuously observing the local situation."