How Hyundai Europe expects to avoid 'more pain' from the chip shortage

Michael Cole, the first non-Korean top boss at Hyundai Europe, wants to boost the automaker's market share in 2021, while simultaneously avoiding production disruptions because of the chip shortage and lingering effects on dealers of the pandemic. To achieve his goal, Cole is counting on strong demand for Hyundai fast-expanding lineup of electrified models, which includes the Ioniq 5 from the automaker’s new full-electric subbrand of the same name. Cole outlined Hyundai Europe's plans in an interview with Automotive News Europe Associate Publisher & Editor Luca Ciferri and Correspondent Andrea Malan.

How is the semiconductor shortage affecting Hyundai in Europe and how long do you expect this to be an issue?

It hasn't had the same impact on us that I have read about at other automakers. There has been some loss of capacity, but we are confident we can maintain our volumes. We benefit from very good relationships with all our suppliers, therefore we have been less effected.

While this isn't a major issue for Hyundai now, do you have any indication what the impact might be for you and the rest of the industry in the next few months?

If I look at our inventory, our stock cover, it's pretty good over the next two months. Across Europe we have good supply to deliver our planned volumes. Longer term, there is probably a bit more pain to come for everyone. What we are trying to do, obviously, is mitigate that by looking at where we prioritize in terms of which products in which plants. We are trying to avoid or lessen the impact of any potential slowdown or any lost days of production. So far, our planning is enabling us to do that.

Does that mean your plants in the Czech Republic and Turkey have not been affected so far?

They have been affected on a small scale. We might have been able to produce more, but this has not cost us any days of production. We have had to slow down to a degree, and we have had to prioritize. But this isn't having a big impact on the availability of products out of those two plants. I'm talking a few thousand units, not tens of thousands.

In January you told us you wanted Hyundai to increase its market share by 0.1 to 0.2 percentage points in Europe in 2021. Are you sticking with this goal?

Looking at the data for the first quarter, we are in line with where we were at the same stage last year. Therefore, we haven't grown the share yet. We are probably 4 basis points (0.04 percent) lower than we were last year, so I'd say our market share is stable. Interestingly enough, if I look at the five major markets (Germany, France, the UK, Italy and Spain) we have held or grown share in each one. We have lost a bit of share in some smaller markets such as Norway, the Netherlands. I still believe we will grow by 20 basis points this year in terms of share, and the reason we have not been able to realize any of that gain in the first quarter has largely to do with our availability of plug-in hybrids.

What is the issue with Hyundai's plug-in hybrids?

In the first quarter of last year the overall market share of plug-in hybrids was 3 percent of the European sales. This year it's 8 percent. It has grown pretty dramatically. We only had 1.2 percent share of that market because during the first quarter we had just one plug-in hybrid, the Ioniq. We are currently introducing the plug-in versions of the Tucson compact SUV and Santa Fe midsize SUV. The Tucson is particularly important for us as that is a segment where we are seeing rapid growth in plug-in sales.

How much of a lift do you expect from those two additions?

Looking at our sales mix, about 5 percent of our annual sales in Europe this year will come from plug-ins, up from 1 percent in the first quarter. That's where we'll get some good growth. As far as other growth opportunities are concerned, with the lockdowns being eased in some markets, particularly the UK, we are just now starting to see the benefit of launching new products like [non-hybrid] Tucson and i20. In addition, we have introduced the Bayon, which will hopefully go on sale later this month. And then we get into the amazing Ioniq 5 coming later in the year. So, yes, I am very confident we will still close the year with a share gain of 0.1 to 0.2 percent.

European green pressure group Transport &Environment wrote that, according to new EU rules, since Jan. 1 automakers have to install a new type of onboard diagnostic system that traces the real fuel consumption of each car and transfers the data in an anonymous way to the EU. Plug-in hybrids only provide lower emissions if there are properly recharged, otherwise they emit more than a non-hybrid car. Will this create a significant headwind for plug-in hybrids?

You are right about the technology, but there are still many decisions required about how the data will be transmitted and used. We are in the pilot phase, so it will be interesting to see what happens. I think it will be a number of years before we see full reporting. The plug-in hybrid still remains very interesting because for a vehicle like the Tucson we deliver an electric-only range of 56 kilometers. That is probably more than enough to cover the daily commute of most people in Europe. Of course heavy users, someone who is on the road two or three hours a day, is also going to be using the internal combustion engine; that would clearly  make achieving CO2 emissions numbers more challenging, although overall emissions produced greatly depend on a person's driving style and other conditions. We know that some people are questioning the long-term viability of plug-in hybrids. I still think the technology offers a CO2 reduction in real terms, with a lot of customers using it to travel emissions free a good share of the time under the right conditions.

Will plug-in hybrids continue to play a significant role after 2025?

They could. To be honest, it is difficult to forecast because it's such a fluid situation. You are aware of the conversations ACEA is having with European Commission around the next round of CO2 targets [Euro 7]. These targets are going to be pretty challenging, so we have to continue this move toward electrification, therefore, plug-in hybrids could be part of that future.

There have been rumors that the Euro 7 standards might turn be more lenient than expected. What is Hyundai's position and would this change allow you to keep making products such as the i10 minicar in the foreseeable future?

Through ACEA we shared our position on Euro 7 [with the EU]. We told them [the European Commission] we have to be careful not to demonize internal combustion engines. I fear that if we had the Euro 7 regulations as they were being proposed, they would effectively eliminate a lot of internal combustion engines, particularly for smaller vehicles, as the cost of complying with the proposed legislation would have been prohibitive. Our position as an industry remains that we have to look at making cleaner technologies available to everybody. If we were to remove internal combustion or if internal combustion became prohibitively expensive in the small car segment, we would actually do more damage because we would end up with people holding on to their older, higher polluting vehicles longer. We are now hearing that the Euro 7 regulations and testing procedures may not be as strict as we first feared. That would be very sensible and an encouraging sign that would enable us to keep offering vehicles such as the i10 that offer affordable mobility.

There seemed to be a slowdown in battery-electric vehicle sales during the first quarter. Did this effect Hyundai? Are you still on track to reach your 2021 target for full-electric sales?

We are absolutely in line with our aspirations for battery-electric cars. We are very proud that we finished last year with 13 percent of our total European sales being battery-electric and fuel cell vehicles. We are almost back in line with that number again at about 12.6 percent so far. In Norway and the Netherlands, we have had a little bit of a slowdown. That  is partly due to some increased competition coming with lots of new entrants. We were very strong in those two markets and we believe we'll get that back. If I look to our total sales volume, we believe more than one in every three vehicles we sell this year will be electrified -- not taking mild hybrids into account. Probably up to 15 percent of our volume will be battery or fuel cell vehicles, another 15 percent will be full hybrid and about 5 percent will be plug-in hybrids. On top of that, we have mild hybrids, including across our SUV lineup. So, we're very confident that we will achieve our CO2 targets again this year, both in the EU and in the UK.

How much more difficult will it be to reach the EU's CO2 target this year with the switch to WLTP guideline from NEDC rules?

This year is going to be tougher in many respects. There's WLTP and the fact that the supercredits [for low-emissions vehicles] could be gone. More importantly, the phase-in allowance, whereby last year you could exclude the highest 5 percent of your CO2 vehicles from the calculations, is gone. This year you count every vehicle, you get no supercredits and you have to apply WLTP standard. Despite this, we are confident because of all the mainstream brands [in Europe], we had the highest ratio of zero emissions vehicles last year. Now we are introducing the plug-in hybrids, which we didn't have last year with the exception of Ioniq, as well as our hybrid powertrain. So, while the fact the targets are tougher, I'm even more confident than I would have been this time last year.

How much more do you have to reduce your CO2 emissions in 2021 compared with 2020 to reach Hyundai's target?

As everything is now converted to WLTP, we just look at that number and not at NEDC anymore. At the current stage, I cannot confirm a fixed number due to this conversion. It will clearly be lower because we don't have the supercredits and we don't have the 95 percent barrier. That probably equates to a further reduction of at least 10 percent. But if you factor out the supercredits, which could have been more than 5 grams last year, and then you add in the 5 percent most polluting vehicles that were excluded during the phase-in, plus you calculate in the switch to WLTP, you would probably quickly get to 15 percent.

When do expect the EU's official 2020 figures to be announced?

We will get some provisional numbers in Q2, but it's usually somewhere in Q3 when you get the final numbers. We are not worried because we had such a buffer that, even if there is disagreement on the numbers or measurements, we will be fine.

When we last spoke, you said that the electric car market is somehow different from the traditional market in the sense that every battery-electric vehicle is a competitor. Is it going to change soon now that all carmakers, including Hyundai, have a growing offer of full-electric cars for different customers?

Yes, I would say that with battery-electric vehicle customers we have moved from the "early adopter" to the "early majority" stage. Previously, EV buyers were particularly interested in the technology and there were fewer models -- so almost all battery-electric cars were competing for those early adopter customers. Now it seems that almost every week someone is launching a new EV in some segment, in some market. So, the battery-electric vehicle product offering is much wider. With improved technology, range anxiety is also less of an issue. That is why I would say we have moved to the early majority phase, where customers with different needs can now also consider a cross section of different products in different segments. We will start to get segmentation for battery-electric vehicles more akin to what we have with internal combustion cars.

Hyundai just introduced the electric-only Ioniq subbrand, calling it mainstream when it is clearly more aspirational. Now your parent, Hyundai Motor Co., is launching the luxury Genesis brand in Europe. How will you avoid overlap with Genesis?

First of all, Genesis is a separate brand, like Kia, within the Hyundai Group. Genesis in Europe is in the same building as Hyundai in Frankfurt, but they are a separate business unit. Ioniq is different. It is a lineup brand, but it is very much an important part of the Hyundai family. Every Hyundai dealer will be able to sell the Ioniq 5, 6 and 7.

The Ioniq 5 cutting-edge exterior and interior designs are what you would expect to see in a concept car, but it is already a production model. How has the initial reaction been?

I am very happy to hear you talk so positively about the Ioniq 5. This is the reaction we are getting across the board for the styling and how advanced it is. We have had more than 200,000 inquiries for the Ioniq 5 in the first three days after launch. For us it is a bit of a game changer. Our vision at Hyundai is to be a leader in smart and clean mobility. The Ioniq lineup brand helps us position Hyundai in that way. It is also is halo model for us. [Hyundai design head] Luc Donckerwolke and his team really wanted the interior be an additional living space where you can feel comfortable and relaxed. And. of course, this ultimately points toward the future of autonomous driving. All in all, it signals where we are going as a brand. And while we want to create an identity for Ioniq, it gives us a new chance to create some additional awareness for Hyundai.

How many Ioniq 5s will be allocated to Europe in a full year?

A full-year volume for us currently is about 40,000 units. Europe will get 3,000 units of the Project 45 [launch edition] model, which was oversubscribed by about 250 percent within 24 hours. We received more than 8,000 reservations, so I wish we had more than 3,000 because we clearly have a lot of demand. And that is for a vehicle people have not seen in person or driven.

What about the almost 5,000 unfulfilled reservations for Project 45?

We are sorry that we are having to tell so many people that we are over-subsribed. We will try and keep them hot for the next round of Ioniq 5 vehicles.

Media reports say the second mode from the Ioniq subbrand may debut in September at the IAA in Munich. Will that be the Ioniq 6 or 7?

What I can tell now is that the next vehicle in the Ioniq lineup that will be presented is the 6.

Like Cupra, Polestar and Volkswagen brand's ID family of cars, Genesis will use an agency distribution model. Is this new approach best suited to premium or electrified brands or is it something that could also work for Hyundai?

At Hyundai we believe in the dealer model as it is. We had an opportunity (to use the agency model) with the Ioniq lineup brand, which is a whole new range, but we decided the right plan was to go through our dealers and the traditional dealer business model.

Does Hyundai plan to introduce an electric city commuter to compete with the Renault Twizy or Citroen Ami?

We are always looking at our long-term product plan to determine what would we need in terms of urban mobility and small cars beyond 2025. Right now, however, we have no plans for such a vehicle or for any electric vehicle that is smaller than the Kona.

Hyundai and Toyota appear to be the only automakers that believe hydrogen has a future in passenger cars. Why do you still believe in the technology?

Right now our priority in hydrogen is more in the heavy-duty truck side, but we have the Nexo [fuel cell SUV], and we will continue to develop the technology because we do see hydrogen as an alternative for passenger cars as well. The reason is because I'm not totally convinced battery-electric vehicles are the 100 percent solution, so there is an opportunity for another solution: hydrogen. One relevant factor is that there is a huge commitment from a lot of national governments toward creating a hydrogen infrastructure. That comes at a cost. Today we already know that there is insufficient infrastructure for battery electric vehicles and the issue is even bigger in terms of the infrastructure for hydrogen. But we will see investments from a lot of national governments and from the European Commission in hydrogen to make it part of the future energy solution. And of course, it isn't just for vehicles, it's for housing, businesses and more. We believe as a company that there is the opportunity to have not only hydrogen for trucking and heavy duty or for cargo, but also for passenger vehicles. So we'll continue with our investment in the area. For instance, with the announcement of our Staria minivan, we said that it will also be available as fuel cell electric vehicle in future.

Will your future hydrogen applications in passenger cars be similar to what Toyota is planning: large SUVs and big sedans, giving them the capability to drive long distances without loading them up with batteries?

That's exactly where hydrogen becomes a very good solution, and why it's so appropriate for heavy trucks. You can drive the long distances and have a quick refueling. So, there is an opportunity, not so much for inner city and urban use, that will be more battery electric. Although you could argue that if we are looking at a hydrogen city provided you have the fueling stations, hydrogen could be a good solution even in a city. But the first opportunity for larger scale volume is probably for larger vehicles because of the long distances possible and the speed of refueling.