Hyundai Motor Company (005380.KS) Earnings Call Transcript & Summary

[Presentation] [Foreign Language]

Hello, everyone. This is Albert Biermann, President and Head of Hyundai Motor's R&D Center. Electrification is the biggest buzz in the auto industry today. This year, due to COVID-19, the global automobile demand has weakened significantly, declining by about 20%. However, electric vehicle sales are telling a different story with a 7% year-over-year increase. Especially in Europe, sales of electric vehicles have sharply risen by 64% compared to 2019 due to tighter CO2 emission regulations while the overall demand fell by more than 30%. With the European market leading the way, the growth of electric vehicles is expected to accelerate further in years to come. By 2030, we expect the electric vehicle market to take up around 30% of the entire automobile market. Now let us see Hyundai Motor Company is doing in the electric vehicle market. As of end of third quarter this year, Hyundai has sold globally about 61,000 units, which is an increase of 33% on year. We account for 5.6% of the global EV market share, which is an increase of 1.1% from 4.5% in 2019. This proves that Hyundai's EVs, such as KONA EV, are expanding their presence across the globe. And with the launch of our new Ioniq 5 next year, we will further strengthen our top-tier position in the global EV market. Year 2021 will be a milestone for us as we will start expanding our EV lineup with the Ioniq 5 to respond to the growing EV market. Going forward, HMC plans to release more than 12 EV models by 2025 with a goal of reaching 560,000 units of annual sales. We will do it by actively supplying EV models using our new E-GMP platform to the market. In addition, in order to secure and maintain our current leadership, we aim to electrify our entire lineup in our key markets and secure an 8% to 10% market share by 2040. The Genesis brand is planning to launch EV dedicated model and derivative EV models from 2021. We will eventually pursue electrification of its all lineups in the future. The Genesis brand, which is to successfully establish itself as a luxury brand in the domestic and the U.S. market, is planning to raise its brand presence across the globe by successfully landing in other markets such as China and Europe and to build an image of luxury eco-friendly brand by introducing a luxury lineup of electrified models. Now let me explain our mid- to long-term strategy in detail. As I mentioned earlier, we intend to achieve full EV in our key markets and secure an 8% to 10% market share by 2040. Starting in 2030, Hyundai Motor Company plans to gradually shift its lineup for EV in key markets such as Europe, China and United States while maintaining ICE vehicle production capacity in emerging countries such as India, Russia and Brazil but which will be limited to less than 50%. In terms of product marketability, we aim to enhance our brand image by targeting younger customers with high-end and higher-trim level vehicles. To achieve this, we have set 3 core business strategies. First is to secure competitiveness in manufacturing. To maintain the cost level, as similar as ICE models, we will further commonize main parts, expand the lineup, focusing on EV dedicated models and differentiate capacities of derivative EV models in the affordable price market to prevent cannibalization and maximize profit. Going forward, we plan to optimize our software and hardware technology for the 5G and 6G environment. We will also secure cost competitiveness by reforming the manufacturing platform, which includes production, operation and logistics. The second task is increasing our market share in the world's EMEA electrified markets. We will target the rapidly growing EV market in Europe and China first and expand to North America, Korea, India and Indonesia, taking full advantage of our current diverse regional portfolio. In China, we will enhance our brand value by reducing low-priced, low fuel-efficient motors and increasing the portion of mid- to high-priced EVs. To this end, we are reviewing plant efficiency and changes in production system. In Europe, we will be more aggressive with electrification to meet the continent's CO2 regulation targets. We will first eye the countries with strength in tax benefits, including the Netherlands and the U.K. In markets such as Norway, where the share of hydrogen fuel cell electric vehicles is expanding, we will increase our sales by fostering synergy between battery EVs and fuel cell EVs. Third is restructuring the strategy execution process to enhance competitiveness. In order to successfully implement the aforementioned strategies, it is necessary to thoroughly review the efficiency and execution plan. We will clarify market positioning, target customers and theme of our electrification models from the initial development stage and established plans to manage manpower and external partnership if needed. Now I would like to move on to explaining in detail our E-GMP, which will be launched next year. Hyundai Motor Group has developed a dedicated EV platform for the next-generation EVs and plans to release the E-GMP models to the market, starting with Ioniq 5. E-GMP, which stands for Electric-Global Modular Platform boasts greater interior space, longer-range AER, better performance and safety optimized for EV. Spacious interior is one of the greatest advantages of the EV dedicated platform. As the engine and transmission are removed, a slim cockpit enables a longer wheelbase, which gives us more interior space. Since the center tunnel in the ICE models is no longer deployed, we can utilize the extra space for new items such as flat floor and utility rear seats. We believe our current outstanding space utilization in ICE models will be further enhanced in our electric vehicles. The E-GMP is a dedicated platform created solely for EVs. It is equipped with a large capacity and standardized battery that enables driving over 500 kilometers on a single charge and an 80% ultrafast charging within 18 minutes. In addition, we will provide a more advanced electrified mobility experience with the world's first multi-charging system for 400-volt and 800-volt, which we believe is a unique competitiveness of Hyundai Motor. Hyundai Motor's E-GMP is mainly designed to drive the rear-wheel, the 2-wheel drive system, but drivers can choose the all-wheel drive and 4-wheel drive as well by installing an optimized battery system for the E-GMP, a balanced weight distribution and a low center of gravity design enable improved handling performance and a more stable high-speed driving experience. Also, the E-GMP deploys a 5-link rear suspension and integrated driving axle, which will be mass produced for the first time in the world, improving comfortable riding performance. The most important factor for auto makers is vehicle safety. The E-GMP was developed with safety being the most important factor. For the safety of passengers and protection of the battery, we used reinforced ultra-high-strength steel, and the body structure is also developed in an optimized structure in consideration of EVs. The E-GMP was also developed with an emphasis on modularization and standardization. It can be designed to match the needs of customers and reduce manufacturing complexity, which will greatly improve production efficiency. Furthermore, by providing additional services, we will present a future mobility experience in which cars are part of people's lives in ways beyond just the means of transportation. The EV business is not just about selling vehicles. Let me move on to Hyundai Motor's strategy for EV-related business areas. First is the battery. Batteries are the core of EV production, and we are in strategic partnerships with multiple battery makers to secure supply and development of the batteries. In order to respond to the expanding electrification market, we are in the process of optimizing batteries by market, segment and purpose. Next-generation solid-state batteries are currently being developed under our leadership. We plan to test launch them in 2025 after meeting the standards on safety, distance and charging time and start mass production in 2027 and full-scale production around 2030. In addition, we are reviewing business models related to the reuse and recycling of batteries. Next is the charging infrastructure. Building sufficient charging infrastructure is crucial to accelerate the EV adoption. Hyundai Motor is establishing 20 ultrafast charging stations with 120 chargers until 2021 in Korea and actively engaged with multiple global partners in overseas markets. In Europe, where EV adoption is relatively common, we are developing a fast-charging business network through a joint venture called IONITY where 5 global OEMs are involved. We believe this will play a key role in our EV sales going forward. Finally, I would like to talk about our business model for future mobility. In the near future, electric vehicles will change into various types of mobility equipped with large-capacity batteries. With these improved battery packs, vehicles can perform as a sort of power buffer as drivers can use the electricity for additional purposes other than just driving. To make this happen, Hyundai Motor Company will apply to its future EVs the battery function that provides electricity to outside devices or to the power grid. These new technologies will open up a whole new chapter for unprecedented business opportunities. Moreover, we plan to actively expand our business areas to car sharing, last-mile delivery and other forms of mobility services by developing and launching the PBVs, or purpose-built vehicles. Thank you.

Hi. I'm Jaiwon Shin, Head of UAM Division. As a person who has been working in the field of aviation over 30 years, this is a truly exciting time because we are looking at the dawn of new era in aviation. Moving toward electrification and autonomous operation is the overall trend in the transportation sector. The aviation sector is also embracing this trend. The proliferation of drones in the recent years is a good example. The idea of making lighter and smaller all-electric flying vehicles such as drones led to the possibility of designing all battery powered, passenger carrying aircraft that can take off and land vertically with better safety and much quieter noise level than conventional helicopters. Combined with ride-sharing business model and rapidly advancing ability to acquire and process big data, it is now conceivable to provide safe, quiet, affordable air transportation, which will open the skies above our cities. The UAM, or urban air mobility, is the next evolution in aviation with a variety of applications such as transporting passengers, moving goods and serving public use cases. I'd like to call this new era as liberation from traffic congestion. The UAM will connect communities and bring them closer together by enabling travel in the air point-to-point, reducing the travel time by 2x or 3x by skipping the ground traffic congestion. With all-electric powertrain, it will help reducing pollution as well. Most importantly, UAM will give back precious time to people to enhance quality of life. You might want to ask, "Well, we already have helicopters that can fly over our city and bypass the ground traffic. So why UAM?" The helicopter cannot be the solution because it is too expensive for public to use. Most megacities tightly regulate the commercial operations of helicopters in the city because of the high noise level and environmental impact. Extremely limited commercial operations drive the price so high that general public cannot use the service. UAM is not going to replace ground transportation. Rather, it is going to augment the society's ability to meet the rapidly growing urban mobility needs by expanding 2D world to 3D. When we are finally able to seamlessly integrate ground and air mobility, it will truly transform the way we travel and move goods, which, in turn, will change our lifestyle completely as cellphones have done. This potential is the reason why there has been so much interest in UAM worldwide. There has been numerous studies forecasting a huge UAM market in the next 10 to 20 years. The most optimistic study forecasts a $1.5 trillion market in 2040s. And because of this potential, so many companies have entered the vehicle development with incredibly diverse designs. Over 250 concepts are being worked by major OEMs and start-up companies around the world. This level of interest is very similar to what went on in the early days of aviation some 100 years ago. The Hyundai Motor Company has unique strength with comprehensive capabilities to become the dominant global player in this exciting new market. The scaled-up UAM market will need several hundreds of thousands or even several millions of vehicles for the global market. This scale requires manufacturing technologies and experience to produce large numbers of high-quality vehicles cost effectively. UAM market will offer various value chain opportunities, such as parts and MRO, infrastructure and financing, which can be captured by Hyundai Motor Group's comprehensive capabilities. Successful vehicle and market development will require unique technologies to differentiate us from competitors. Hyundai's hydrogen fuel cell technology and experience in electrification will enable us to have the competitive edge. It also requires an ability to form sophisticated global scale partnership. Finally, the ultimate success will come from the ability to integrate all modes of future ground and air mobility to provide seamless transportation experience to customers. The HMC has the great potential to become the integrated mobility solutions provider. Realizing a brand-new market, of course, has its own challenges, we're building a world-class team to meet and overcome the challenges by laser focusing on the 4 pillars and by strictly following the 4 cornerstone principles. Our 4 pillars will enable us to design and build safe, quiet, affordable and passenger-centered vehicles. Building the safest vehicle is most important to us, and we will not compromise the safety of our vehicles. We will ensure the HMC's vision of the human-centered mobility is in our DNA by bringing vehicles that the public will enjoy the ride in comfort. I have talked about the HMC's unique strengths and comprehensive capabilities. With the world-class team we're building and effectively leveraging HMC's comprehensive capabilities, I believe we have the right to win the #1 position in the global UAM market. To achieve this goal, we will execute the 3-thrust strategy. Thrust 1 is to build a family of air vehicles, targeting both passenger and cargo markets. All vehicles will have the vertical takeoff and landing capabilities to enable one-way independent operations. The first product to enter the market in 2026 will be the mid to large payload air cargo UAS with hybrid powertrain. The all-electric UAM vehicle optimized for intra-city operation will enter the market in 2028. In 2030s, we will introduce a regional air mobility vehicle that will connect adjacent cities with extended range capability. Thrust 2 is to develop game-changing technologies that will differentiate us from our competitors. By designing our vehicles for manufacturability from day 1 and leveraging HMC's smart manufacturing technologies, we believe we can produce our vehicles in large numbers and more cost effectively than aviation OEMs and any other start-up companies can. When we develop hydrogen fuel cell powertrain for aviation by fully leveraging already commercialized HMC's hydrogen fuel cell technology, we will bring a revolution in aviation with superior efficiency and range. Thrust 3 is to provide leadership in building the UAM ecosystem. In order to realize the fully scaled-up UAM market, just coming up with an air vehicle will not be enough. All players such as federal and local governments, regulatory organizations, real estate developers, vehicle developers and air navigation service providers need to work together to build the safest and affordable system. We'll also engage directly with stakeholders to address their concerns and promote benefits UAM can bring to their communities to force the broad and effective public acceptance. As mentioned earlier, UAM will liberate us from traffic congestion and democratize urban air mobility, serving the public as a critical part of integrated mobility solutions. It will also free up facilities in land currently being used to support ground transportation system. Just imagine a megacity could convert even just 20% of its land used for streets and parking facilities to museums, parks, community centers and performing centers. The UAM has a huge potential to vitalize our cities to become more human-centric by providing better access to benefits and convenience of big cities, better walkability and cleaner air. HMC is committed to deliver the safest and affordable air vehicles to bring this exciting new world to our customers. Thank you.

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