Hyundai’s best years in the US face a test of the Inflation Reduction Act

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Hyundai's best years in the US face a test of the Inflation Reduction Act
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Drew Anger | Getty Images News | Getty Images

SAVANNAH, Ga. — Hyundai Motor Group is having its best years in the United States

The South Korean automaker has successfully moved from cheap vehicles and dancing hamsters to competing with formidable automakers in the highly profitable US market.

The company’s Hyundai, Kia and Genesis brands are expected to capture nearly 11% of the US new-vehicle market this year, marking its highest level since the automaker entered the country in 1986. It is also expected to be among the top electric vehicle sellers this year. year, tracking only You’re here until the third trimester.

But whether the world’s fourth-largest automaker by sales last year can continue that winning streak, particularly in electric vehicles, is in question. In August, Hyundai buyers lost federal tax credits associated with buying an electric vehicle due to changes to the program under the Biden administration’s Inflation Reduction Act.

Domestic automakers, including Hyundai’s closest EV competitors — You’re here, Ford engine and General Motors — are still eligible for the credit. All of Hyundai’s electric vehicles are currently imported into the United States, though it produces several gasoline-powered models at plants in Alabama and Georgia.

Hyundai Motor Co. CEO Jaehoon “Jay” Chang, in an exclusive interview with CNBC, described the loss of incentives as concerning and “a very difficult issue.” But he said he believed the automaker could continue its long-term growth in the United States, despite the short-term hiccups.

“IRA, in the short term, this limits us in customer choice,” Chang told CNBC last month as the company celebrated the grand opening of a new $5.5 billion electric vehicle and battery plant. dollars in Georgia. “For the long term…we have a very solid plan….I think we can be competitive.”

Hyundai, including Genesis, and Kia are owned by the same parent company based in Seoul, South Korea, but largely operate separately in the United States.

Navigate the IRA

Hyundai, Kia and other non-domestic automakers have been vocal opponents of new electric vehicle tax credit regulations under the IRA. The law, passed by Congress in August, immediately eliminated a tax credit of up to $7,500 for plug-in hybrid and electric vehicles imported from outside North America and sold in the United States.

Hyundai is working closely with government officials in the United States and South Korea to change regulations or secure an exemption for the automaker, Chang said. U.S. officials have confirmed such talks are ongoing, including a meeting last week between U.S. Trade Representative Katherine Tai and South Korean Commerce Minister Ahn Dukgeun.

Hyundai argues that its investment in Georgia – the largest economic development project in that state’s history – should count for something in the way of an IRA review.

Hyundai executives and government officials inaugurate the automaker’s new “Metaplant America” ​​in Bryan County, Georgia on Tuesday, Oct. 25, 2022.

CNBC | Michael Wayland

The leaders also note that the United States and South Korea have a duty-free agreement in place for vehicles. (Vehicles built in Mexico and Canada still qualify for credits.)

Jose Munoz, global president and chief operating officer of Hyundai Motor, declined to disclose a specific financial impact associated with the credit loss, but described it as a blow to the automaker’s results.

Steven Center, chief operating officer of Kia America, said the IRA’s intentions are good for America, but “have pulled the rug out from under everyone’s feet.”

EV credits or not, executives said the new Georgia plant, which was announced months before the IRA was passed, is the culmination of Hyundai’s U.S. growth. They attributed the progress to a systematic approach to improvement over decades and a decisive strategy to do it all. -in on its novelties in recent years.

“We’re trying to do everything we can do, but honestly it’s always difficult to be the kind of innovative disruptor. But I think so far hopefully we’re on the right track to meet that. customers’ needs,” says Chang. “We like to be different.”

“Different” products

Look no further than new vehicles from Hyundai for the company to prove it’s ‘different’. The automaker’s futuristic-looking Kia EV6 and Hyundai Ioniq 5 look ready to blast off into space.

Meanwhile, the Hyundai Palisade and Kia Telluride SUVs have been among the most in-demand vehicles in the country since their launch in 2019.

The Kia EV6 on display at the New York Auto Show, April 13, 2022.

Scott Mlyn | CNBC

Executives noted that the introduction of the Telluride and Palisade, followed by the Kia EV6 and Hyundai Ioniq 5, were major milestones in the company’s product plans.

“The Telluride is attracting wealthier, younger and better-educated customers, and they’re all wins. It’s a real game-changer,” Center said, calling SUVs and EVs “golden cycles” for Kia. “We envision more, and we will grow as fast as we can.”

SUVs and electric vehicles followed the automaker’s surprising and well-received entry into the luxury market with the Genesis brand in 2015..

Genesis has performed well in influential rankings from Consumer Reports, JD Power and others. At the Los Angeles Auto Show last week, Genesis won accolades with a new convertible concept vehicle, and its G90 sedan was named Motor Trend’s 2023 Car of the Year.

Genesis X Convertible concept EV

Genesis

“The design language was the big differentiator for us,” Chang said. “We’re going to leave the freedom to the designer.”

Even the company’s Kia Carnival minivan – a segment that many have abandoned – has been praised for its SUV-like design and features.

The Rise of Hyundai

The rise of Hyundai and Kia is impressive compared to other non-domestic automakers.

“When they arrived, they had a reputation for just being cheap,” said Jake Fisher, senior director of automotive testing at Consumer Reports. “Over the years it went from cheap to cheap to really really competitive.”

Japan-based Toyota has spent decades building sales in the United States. It entered the US auto industry with small cars in 1957 and reached 10.4% market share in the US in 2002, according to public records. It is now the largest automaker in the world by sales in recent years.

Hyundai reached the 10% market share threshold in the United States last year, according to LMC Automotive, about 10 years faster than Toyota. The research and forecasting firm expects Hyundai’s U.S. market share to peak at 10.7% before dropping to 9.7% in 2025 as electric vehicle production in the new Georgia plant is expected to start.

“I think what Hyundai, Kia and Genesis have done is they’ve really reduced that time frame. They’ve gone from cheap vehicles to competitive vehicles to competitive luxury vehicles in a relatively quick period of time.” , Fisher said.

Sales of Hyundai and Kia vehicles have increased about 61% since 2010 to more than 1.4 million vehicles in the United States last year. Despite an expected decline in sales this year due to supply chain issues, the company is still expected to gain market share.

It’s a similar story for electric vehicle sales. LMC expects Hyundai’s all-electric vehicle sales to account for 9.2% of the U.S. EV market this year. While sales are expected to increase, that percentage is considered the company’s peak through at least 2024 or 2025, when the new Georgia plant is expected to go live.

Hyundai’s production, which places it among the top five in the world, remains below that of Toyota and Volkswagen. Munoz said the new Georgia plant is expected to produce 300,000 vehicles a year, with the potential to reach 500,000 in the future. The company’s two current US plants can produce up to 730,000 vehicles per year.

“In the United States, our plan is to grow,” Randy Parker, CEO of Hyundai Motor America, told CNBC earlier this month. “It all comes down to capacity which will dictate how far we can grow.”

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