Hyundai Turns China Setback Into Global Success

New Hyundai cars are displayed on the sales lot at San Leandro Hyundai in San Leandro, Calif., on May 30, 2023. Justin Sullivan/Getty Images

News Analysis

Hyundai Motor’s sales in China have plummeted since 2016 due to a diplomatic dispute between Beijing and South Korea. What initially seemed like a significant blow ultimately meant Hyundai became less reliant on China and expanded its presence in the global market.

Since 2017, the automaker has experienced significant growth in the United States, India, and Europe, leading to triple-digit growth in overall operating profits. Now, it is on the verge of overtaking Volkswagen to become the world’s second-most profitable automaker, trailing only Toyota.

In 2016, Hyundai produced nearly 1.8 million vehicles in China. But after South Korea deployed the U.S.-made Terminal High Altitude Area Defense (THAAD) system in 2017 to deter North Korean missile threats—a move opposed by Beijing—the resulting diplomatic fallout led to economic retaliation from China. Chinese state media urged citizens to boycott Korean products, while Korean businesses in China were hit with increased inspections, fines, and other regulatory hurdles.

Consequently, Hyundai’s sales nosedived to below 400,000 units by 2023, forcing the company to sell several plants and drastically reduce its presence in the once-crucial market.

Faced with the China setback, Hyundai shifted its focus to other markets—a move that paid off handsomely.

In a 2023 year-end sales report, the company confirmed it “saw a significant sales increase in overall global markets, especially in Korea, North America, Europe, and India.”

This year, Hyundai Motor Group made significant strides in the electric vehicle market, capturing 10 percent of U.S. sales and ranking second behind Tesla.

In the United States, Hyundai and its affiliate Kia achieved record sales in 2023, selling more than 870,000 Hyundais and more than 782,000 Kias.

A 2023 J.D. Power survey ranked Kia as the top-performing mass-market brand for the third consecutive year, surpassing brands such as BMW and Toyota in overall vehicle dependability.

Hyundai Motor Group rose to fourth place in U.S. auto sales in 2023, up from seventh in 2019.

The group produced more than 1 million vehicles in India last year, up from 550,000 in 2019. Production also grew in European countries like Turkey, the Czech Republic, and Slovakia, further diversifying its global footprint.

Hyundai’s dependence on China is now minimal. Combined sales of Hyundai and Kia in China accounted for just 5 percent of its total sales. Notably, 90 percent of their operating profit comes from markets like the United States, India, and South Korea—where Chinese automakers have a limited presence.

Meanwhile, the Chinese auto market has become oversaturated with fierce competition and shrinking margins. Both traditional and new-energy vehicle segments face oversupply. Last month, China boasted an annual production capacity of more than 10 million new-energy vehicles—but demand doesn’t match this capacity.

U.S.-based Chinese economist Li Hengqing told The Epoch Times that policies favoring domestic production and consumption of Chinese-branded products have put additional pressure on foreign companies, leading to razor-thin margins and heavy reliance on subsidies. And that even Tesla might eventually sell its operations to China if it cannot withdraw entirely.

In the first nine months of this year, Hyundai Motor Group—including Hyundai and Kia—ranked third in global auto sales. Notably, it outperformed Volkswagen in operating profit, trailing only Toyota. In the third quarter, Hyundai Group’s operating profits were approximately $4.6 billion, while Volkswagen’s were around $3 billion. For the first three quarters, Hyundai earned about $15.3 billion in operating profit, surpassing Volkswagen’s $13.5 billion. Toyota led with $27.5 billion.

Hyundai also outpaced Volkswagen in profit margins, posting 10.2 percent over the first three quarters, compared to Volkswagen’s 5.4 percent. Toyota’s margin was slightly higher at 10.4 percent. Analysts expect Hyundai to surpass Volkswagen in profitability by year-end if these trends continue.

In contrast, Volkswagen remains heavily reliant on China. About 31 percent of its global sales in the first three quarters of this year were in China, contributing to its financial difficulties. Its China sales fell from 4.23 million vehicles in 2019 to 3.07 million in 2023, reducing from 38 percent to about 33 percent of its global sales. In the third quarter, China sales dropped 15 percent, and net profit plunged 63.7 percent to about $1.66 billion. Volkswagen plans to close at least three German factories and cut tens of thousands of jobs.

Sun Guoxiang, an international affairs professor at Taiwan’s Nanhua University, echoed Li’s view. He told The Epoch Times that companies overly reliant on China, such as Volkswagen, are struggling due to China’s slowing economy and policy risks. He noted that Hyundai’s diversified strategy has insulated it from these challenges.

While Hyundai hasn’t yet surpassed Volkswagen in global sales, the Korean automaker has outperformed the German company in sales outside China since 2020. In 2023, Hyundai sold about 6.8 million vehicles outside China, while Volkswagen sold about 6.2 million units.

Hyundai’s increased profitability reflects successful strategic adjustments. By reducing reliance on China and focusing on other markets, Hyundai is edging closer to becoming the world’s second-most profitable automaker, second only to Toyota.