Hyundai plans $1.6 billion Indonesia plant; gets approval for new Seoul HQ

SEOUL -- Hyundai Motor said on Tuesday it has signed a preliminary deal to build a new factory in Indonesia, which would be its first car plant in Southeast Asia and a crack at Japanese rivals that dominate the market.

The deal comes as Hyundai and affiliate Kia Motors struggle with a prolonged sales downturn in China, where they suspended two factories this year.

Also on Tuesday the Seoul city government said it has approved the long-delayed construction of Hyundai's new headquarters in the affluent district of Gangnam, which is set to be South Korea's tallest skyscraper when completed in 2026.

The approval came more than four years after Hyundai Motor Group, South Korea's second-largest conglomerate, offered to purchase the site with $10 billion in 2014, more than triple its market price, outbidding Samsung Electronics and sparking a stock sell-off.

Hyundai said it will invest about $1.6 billion in the Indonesia plant from now until 2030, including product development and operation costs.

The facility, to be built in the city of Bekasi, east of Jakarta, will start production in late 2021, with an annual capacity of 150,000 vehicles and a plan to grow that to 250,000 vehicles a year, Hyundai said.

Hyundai plans to make small utility vehicles and multi-purpose vehicles, while electric vehicles tailored to Southeast Asian market are under consideration.

Hyundai said it is building the factory to avoid import tariffs ranging from 5 percent to 80 percent in the ASEAN region. The plant will cater to Indonesia, the region's largest automobile market, and other countries belonging to ASEAN, it said.

The plant will allow the automaker to secure future growth to help it "combat slowing demand in the global automotive market", Hyundai said in its statement.

The deal was signed at an event attended by Indonesian President Joko Widodo and Hyundai Motor Executive Vice Chairman Euisun Chung. Widodo is in South Korea for a meeting of ASEAN leaders hosted by South Korean President Moon Jae-in.

Moon has been pushing a "New Southern Policy" aiming to deepen ties with Southeast Asia as Seoul seeks to curb its reliance on traditional trading partners like China and the United States.

Hyundai is far behind Japanese rivals in Southeast Asia, with its sales reaching 122,883 vehicles versus Toyota's 854,032 from January to September this year, according to research firm LMC Automotive.

LMC Automotive forecast a 4 percent year-on-year decline in total vehicle sales in the ASEAN region in the fourth quarter, partly because the slowdowns in the Thai and Indonesian economies show no signs of abating.

Hyundai said key ASEAN countries including Indonesia, Thailand, Malaysia, Vietnam and Singapore are expected to see combined vehicle sales grow to 4.49 million units in 2026, from 3.16 million in 2017.

The construction of the new headquarters, originally scheduled to commence in 2016, was delayed partly due to security concerns raised by South Korea's air force, which said the building would interfere with radar and military operations, a Seoul city official said.

Hyundai signed an agreement with the defense ministry to resolve operational restrictions until the construction of the building has reached around 260 meters high, the official said, adding that the construction can be suspended should Hyundai fail to do so.

The building, consisting of 105 floors, will house not only offices, but a car theme park, a hotel, a concert hall and a convention center, according to its 2014 plan. It will be home to 18,000 employees from 30 affiliates of the conglomerate, it said at the time.

Hyundai Motor said in March that it was in talks with potential investors to share additional investment costs worth about 3.7 trillion won ($3.1 billion) needed to develop its new headquarters, following a call by U.S. hedge fund Elliott Management to drop the controversial project.

The automaker is trying to rebound from its sixth consecutive annual profit decline, while accelerating its investments in future technologies.

Hyundai said it "will continue to work closely with the Seoul Metropolitan Government to proceed with the project in compliance with the administrative procedures.”