Why Hyundai is selling its Russian plant for a measly $110

Industry

Published: 21 Dec. 2023, 17:30

Why Hyundai is selling its Russian plant for a measly $110

Hyundai Motor employees work at its plant in St. Petersburg, Russia. [SCREEN CAPTURE]

Hyundai Motor's sale of its Russian plant for just a little more than $100 implies its intention to return to the market, hopefully in two years.

But that will not be an easy game to play, even if the situation allows, as Chinese automakers are already quickly moving in amid the ongoing Russia-Ukraine war.

Earlier in the week, Hyundai Motor announced its decision to sell its plant in St. Petersburg, Russia, to Russia's Art-Finance for 10,000 rubles, or $110. The deal incorporates a two-year buyback option, enabling the automaker to repurchase the facility within two years after the initial sale.

The dirt-cheap sell-off comes as Hyundai halted its operations at the plant in March last year due to difficulties with the supply of components after Russia’s war with Ukraine.

The plant is valued at 287.3 billion won ($220 million). Hyundai is anticipated to incur a loss of approximately 1 trillion won due to the shutdown and sell-off.

Hyundai's decision mirrors precedents set by companies such as Nissan Motor, which transferred its Russian plant to a state-owned entity for just 1 euro ($1.09) in 2022. Similarly, France's Renault sold its entire Russia operations for 2 rubles and exited the country.

"Hyundai endured as much as it could but eventually gave in to the Russian government's pressure," said Kim Pil-soo, an automotive engineering professor at Daelim University.

"It aims for a return in two years but that will not be easy as Chinese automakers have already moved in with their reasonable price tags."

Hyundai Motor's St. Petersburg plant in Russia [HYUNDAI MOTOR]

With China not joining U.S. and European sanctions on Russia, its sales in Russia have been skyrocketing in recent years.

Nearly one in two vehicles sold in Russia were Chinese brands this year. The No.1 car brand in Russia in the first half was Lada, but six Chinese brands accounted for 45 percent.

Great Wall Motors sold 4,895 vehicles in Russia between Jan.-June, up 1,444 percent on year. Sales of China’s Wuhu, Anhui Province-based Chery Automobile soared 321 percent while Haval jumped 242 percent.

Sales of Geely Automobile Holdings surged 227 percent, according to data from the Association of European Business.

Russia's market tracker Autostat reported that the share of Chinese brands in Russia, which was only 7 percent before the war, has increased more than sevenfold, according to a recent report.

Hyundai was the leading automaker in Russia, holding nearly 30 percent of the market share in 2021 before the war began. They sold 2,892 vehicles in Russia last year, but that slid to six this year as of the end of August.

Hyundai had nearly 30 percent of market share in 2021 before the war started. It acquired the St. Petersburg plant from General Motors in 2020.

"Hyundai and Kia won't give up the Russian market that easily," Kim said. "They should be fully prepared with different strategies to compete with Chinese brands when they return."

BY SARAH CHEA [chea.sarah@joongang.co.kr]