Hyundai invests $1.55 billion in first Indonesia car factory

November 27, 2019

South Korea’s Hyundai Motor said on Tuesday it has signed a preliminary deal to build a new factory in Indonesia, which would be its first car plant in Southeast Asia and a crack at Japanese rivals that dominate the market.

The deal comes as Hyundai and affiliate Kia Motors struggle with a prolonged sales downturn in China, where they suspended two factories this year.

Hyundai Motor said it will invest about $1.55 billion in the Indonesia auto manufacturing plant from now until 2030, including product development and operation costs.

The facility, to be built in the city of Bekasi, east of Jakarta, will start production in late 2021, with an annual capacity of 150,000 vehicles and a plan to grow that to 250,000 vehicles a year, Hyundai said.

Hyundai plans to make small sport utility vehicles (SUVs) and multi-purpose vehicles (MPVs), while electric vehicles (EVs) tailored to Southeast Asian market are under consideration.

Hyundai said it is building the production facilities to avoid import tariffs ranging from 5% to 80% in the ASEAN region. The plant will cater to Indonesia, the region’s largest automobile market, and other countries belonging to the Association of Southeast Asian Nations (ASEAN), it said.

The plant will allow the automaker to secure future growth to help it “combat slowing demand in the global automotive market”, Hyundai said in its statement.

The deal was signed at an event attended by Indonesian President Joko Widodo and Hyundai Motor Executive Vice Chairman Euisun Chung. Widodo is in South Korea for a meeting of ASEAN leaders hosted by South Korean President Moon Jae-in.

Moon has been pushing a “New Southern Policy” aiming to deepen ties with Southeast Asia as Seoul seeks to curb its reliance on traditional trading partners like China and the United States.

Hyundai is far behind Japanese rivals in Southeast Asia, with its sales reaching 122,883 vehicles versus Toyota’s 854,032 from January to September this year, according to research firm LMC Automotive.

LMC Automotive forecast a 4% year-on-year decline in total vehicle sales in the ASEAN region in the fourth quarter, partly because the slowdowns in the Thai and Indonesian economies show no signs of abating.

yundai said key ASEAN countries including Indonesia, Thailand, Malaysia, Vietnam and Singapore are expected to see combined vehicle sales grow to 4.49 million units in 2026, from 3.16 million in 2017.

Automakers around the world are awaiting a decision from US President Donald Trump on whether he will impose up to 25% tariffs on US car and auto part imports after a 180-day review period elapsed this week.

Trump was briefed ahead of the expiry of the self-imposed deadline, which he set in May, to decide whether to again extend a review or impose tariffs that automakers have warned could cost jobs and dramatically boost vehicle prices.

“I’ll make a decision fairly soon. I was fully briefed and I’ll make a decision fairly soon,” Trump said on Wednesday.

Officials from major automakers told Reuters they believe Trump will not impose new levies on vehicles from the European Union, Japan or elsewhere amid a trade war with China.

The Trump administration first launched its probe of foreign autos in May 2018 and six months ago Trump agreed with an administration study that some imported cars and trucks are “weakening our internal economy” and threaten to harm national security, but stopped short of naming specific vehicles or parts.

Trump could make an announcement on Friday, but nothing is final until he signs off, administration officials say.

Trump has been especially critical of foreign-made vehicles and jawboned both US and foreign automakers to build more cars in the United States. “Cars are the big one,” he said last year.

A delay on tariffs could push the issue back to the middle of the 2020 presidential campaign and experts say it could be harder for Trump to impose a hefty tariff on a major consumer product close to an election.

Tariffs may not be necessary, U.S. Commerce Secretary Wilbur Ross said earlier this month. EU officials also expect Trump to announce a six-month delay.

On May 17, Trump had postponed a decision on tariffs by up to 180 days as he ordered US Trade Representative Robert Lighthizer to pursue negotiations.

The White House declined to comment Thursday. Ahead of the deadline, foreign automakers have been eager to highlight their US investments to try to dissuade Trump from using tariffs that they argue could cost US jobs.

Tennessee Governor Bill Lee, a Republican ally of Trump’s, attended a groundbreaking at Volkswagen Chattanooga assembly plant, marking the beginning of an $800 million expansion to build electric vehicles and add 1,000 jobs.

South Korean automaker Hyundai has also announced it will start making its Santa Cruz pickup trucks at its Alabama factory in 2021, with an investment of $410 million, as it seeks a foothold in the segment led by US rivals.

gulftoday