South Korean car giant Hyundai Motors announced on Tuesday that it is planning to open a new car manufacturing facility in Indonesia. The company said that it has already signed a phase one deal and the plant will be its first in Southeast Asia.
Understandably, Hyundai is planning to take on its Japanese rivals which have a significant presence in the Southeast Asian countries. The company said that it will invest $1.55 billion in the building from now till the end of 2030. The investment cost includes both operating and product development costs.
Inside the plant
The plant will be unlike the ones in South Korea. Hyundai aims to make small multi-purpose and sport utility vehicles that would particularly suit the taste and preferences of its Southeast Asian customers at its Indonesia facility.
Small cars have a huge demand in Southeast Asia. So much so, that customers even prefer their SUVs and multi-utility vehicles to be smaller in size compared to those in demand in the United States and China.
The new manufacturing facility will be built at Bekasi, close to the country's capital Jakarta, and will start operations by late 2021, with an annual capacity of producing 150,000 vehicles. The company plans to up the production capacity to 250,000 later.
The company also said that it would later focus on producing electric vehicles from that facility.
Hyundai changes strategy
Hyundai Motors and its affiliate Kia Motors have been suffering for a while now. The company has been witnessing a decline in its car sales in China owing to a slowdown in its economy. Southeast Asia has a growing market and Hyundai wants to expand its footprint in this zone with its first manufacturing facility in Indonesia.
However, the road won't be that smooth given that Japanese carmakers already have a strong presence in the ASEAN region.
Opening a facility in Indonesia is a strategic move by Hyundai. Indonesia is the largest car market in Southeast Asia. Moreover, Hyundai is known for its small cars Southeast Asia is one of the biggest markets for small cars.
Also, a manufacturing facility in Indonesia would allow the Korean auto giant to avoid tariffs that range between 5% and 80% in the ASEAN region.
A car manufacturing facility in Indonesia will allow Hyundai to smoothly operate in all other member countries of ASEAN.