Kia Motors signs MOU to build third plant in China; 70% increase in capacity and a push to maintain market share
Kia Motors Corporation plans to build a third manufacturing plant in China in order to meet increasing local demand and to maintain its positive sales momentum in the market. Upon completion of the new Dongfeng Yueda Kia Plant 3—with a capacity of 300,000 units annually—Kia will have increased its production capacity in China by some 70% from the current 430,000 units at its existing two plants to a total of 730,000 units per year. (Dongfeng Yueda Kia (DYK) Motors is a 50/50 joint venture through which Kia Motors manufactures, markets and services vehicles in China.)
Kia’s China market share has grown from 2.0% in 2007 (ranking 18th in the industry) to 3.0% in 2010 (13th). Through September of this year, Kia’s market share reached 3.5%, making it a top-10 auto maker in the China market. Its sister company Hyundai Motor Co. has annual capacity in China of 720,000 units—the combined Group expects to reach sales of around 1,150,000 units in 2011, placing it third in the Chinese market behind VW and GM.
According to a Chinese government policy-making think tank, the State Information Center, next year’s local automotive demand will reach 12.7 million units—a 14.2% increase from this year’s anticipated total of 11.1 million. Annual demand is expected to increase to 17.9 million units in 2014 and to 19.6 million units in 2015.
Based on these forecasts and the production capacity increases being made by its major competitors, Kia predicted that its market share in China would drop from the current 3.5% to 2.4% in 2014 if it only operated two plants.
The new plant will be located just five kilometers from Kia’s second plant in Yancheng’s Economic and Technology Development Zone. The close proximity to the existing facility will enable Kia to utilize the established infrastructure and to create synergies between the plants.
Kia plans to begin construction of the new plant at the end of next year and anticipates completion of the facility and the roll-out of production models in the second half of 2014.
Strategic models developed especially for the Chinese market to reflect local needs and preferences will be built at the new plant, but the specific models have yet to be finalized as Kia continues to study the rapidly transforming Chinese automobile market.
The city of Yanchang will be gifting 1,500,000 m2 of land to Kia and will also provide incentives such as preferential tax rates.
Sales of locally-manufactured Kia vehicles reached 101,427 units in 2007, and the company posted a 40% year-on-year increase in 2008, selling 142,008 units after the second DYK plant was put into full operation. Kia continued its strong growth in 2009, recording a 70% year-on-year increase (241,386 units sold). Last year, Kia posted further strong double-digit growth, reaching 333,028 vehicles sold for 38% year-on-year growth.
So far this year (through the end of October), sales of locally produced vehicles recorded 341,682 units thanks to the introduction of the highly competitive mid-size K5 sedan (known as ‘Optima’ in markets outside of Korea and China) and the sub-compact K2 (a localized version of the all-new Rio).
Kia says it is confident of reaching its 2011 China sales target for locally-produced vehicles of 430,000 units. Kia enjoyed its highest-ever monthly sales in China in September, with 43,508 vehicles delivered—including 4,001 K5 sedans and 10,478 K2 cars.
We need to be very active in terms of meeting growing consumer demand in order to maintain our current positive momentum. However, it is also essential that we further increase the emotional appeal of our products and raise our brand awareness in conjunction with establishing a strong local production system.
The Chinese market has been the key focus for many global automakers, and this trend has resulted in Chinese customers demanding better cars. So it’s imperative that we capture the hearts of our Chinese customers by giving them an unsurpassed ownership experience.—Hyundai Motor Group Chairman, Mong-Koo Chung