Shares in Hyundai Motor and its suppliers slid last week on fresh worries over their position in China after highly critical state newspaper comments, even as the South Korean automaker managed to get a Chinese car plant restarted.
Hyundai has been at odds with partner BAIC Motor over supplier strategy, sources have said – a rift that appears to be at the root of some of its parts makers not being paid on time, leading to plant stoppages.
Sources have told Reuters that BAIC wants to shift to cheaper Chinese suppliers to cut costs amid intensifying competition in the world’s biggest auto market while Hyundai wants to protect its current supply chain.
The problem has become a major headache for Hyundai which is also grappling with fierce competition and a less than stellar product line-up – a host of difficulties that prompted S&P Global Ratings to cut its outlook for the automaker and affiliate Kia Motors Corp. last Friday.
Its China woes were thrust into the spotlight again as the Global Times, in an article in its English edition last Thursday, cited unidentified sources as saying BAIC may end its partnership over supplier disputes.
BAIC Motor wants to shift to cheaper Chinese suppliers to cut costs... while Hyundai wants to protect its current supply chain
The state-run newspaper followed up with commentary last Friday lambasting Seoul for its decision to deploy the US anti-missile defence system THAAD – a diplomatic stand-off that has been hurting Hyundai and other South Korean firms that are highly reliant on the Chinese market.
Shares in Hyundai suppliers saw some of the worst drops among slides for raft of South Korean firms, as investors feared a shift to Chinese suppliers was underway. Module maker Hyundai Mobis tumbled 4.7 per cent and engine parts maker Hyundai Wia 7.1 per cent.
BAIC declined to comment and said it was not aware of the Global Times articles.
Hyundai said in a statement that a cooperative relationship with its partner would continue and “the two companies plan to continue various dialogue to strengthen competitiveness in the Chinese market”.
The automaker’s shares ended down 1.8 per cent and have fallen six per cent since reports of the payment problems in China first emerged.
Analysts said Hyundai’s traditional suppliers may find themselves losing business because of the infighting with BAIC, and that the stakes were high for both automakers if they did not work out their problems.
“Beijing Hyundai is Hyundai’s only JV in China, so I feel that it is intuitively very important to Hyundai. BAIC only has two joint ventures, one with Benz and one with Hyundai, and its own brand isn’t very good. So Beijing Hyundai to BAIC is, of course, very important,” said Jefferies analyst Patrick Yuan.
The automaker said earlier in the day that operations at its plant in Hebei province resumed last Thursday afternoon after being suspended since Tuesday – the second time in as many weeks that it has had to halt production at Chinese plants.
“We continue to be in discussions over payment,” a spokesman for the automaker said.
Samsung Securities analyst Esther Yim said the internal disputes over suppliers signalled a prolonged crisis for the South Korean automaker.
“Investors are frustrated that Hyundai is just blaming the political situation and doing little to address the problem. Hyundai is a silent bystander,” she said.