Why Hyundai's hot streak in Europe is set to continue

Michael Cole, the first non-Korean top boss at Hyundai Europe, helped the automaker to increase its market share by a full point in the first half. He did so with help from new products such as the full-electric Ioniq 5 and careful management of Hyundai's order bank to offset supply chain disruption. Cole is optimistic that Hyundai will continue to succeed in the second half despite the first signs of softening demand. He discussed this and more with Automotive News Europe Associate Publisher & Editor Luca Ciferri and Correspondent Andrea Malan.

Hyundai bucked Europe's downward trend, increasing first-half year sales 14 percent and boosting market share a full point to 4.7 percent. Did you expect such strong results?

In terms of sales, we are pretty much where we planned to be. And we wanted to grow our market share as we leveraged some great new products, particularly with the Ioniq 5's first full year on the market. However, we did not expect that volume would give us a 4.7 percent share. We didn't expect the overall market would be as low as it has been.

How much of Hyundai's success is product driven and how much comes from the fact that your parent, Hyundai Group, has had a most consistent supply of chips from South Korean semiconductor suppliers?

Both factors helped us weather the storm better than others. We demonstrated good supply chain management, and we also have a very significant number of orders for many of our products. The volume we achieved has reached maximum capacity given the constraints. I'm proud of the way we have managed the order bank, given our fairly wide range of products and all the powertrains options we offer. We have been able to keep our production pretty much at regular capacity, which is why we are hitting our planned numbers.

Are supply constraints having a difference impact on your European production compared with the vehicles you get from Korea?

Not really. Since Korea supplies global markets, when there are supply challenges we have to find a balance with other regions to get vehicles. This means, for example, that we have a slightly smaller supply of the Ioniq 5 than we anticipated.

How big is the current order book for the Ioniq 5?

It varies significantly by market. In what we call "EV markets," which are the UK, Germany, France, the Netherlands and Norway, the order books extend into next year. We are already in 2023, and for some of them, not necessarily just in Q1 2023.

How much larger is your order bank, in terms of months of sales, compared with the norm at the end of 2019?

I would say it is at least twice as long as it would be normally. Of course, it varies by model. The delivery time for the Ioniq 5 will always be longer than that of our i-range. For the Ioniq 5, the order bank is larger than what we would have normally expected, even for one of our top sellers, at six, nine or even 12 months in some markets.

Six months to a year is a long time. What is the targeted waiting time for your products?

Historically, European customers have been expecting to wait when purchasing a higher-value vehicle. That is not necessarily the case for minicars and small cars. Now, we must learn to live with this. That being said, I think a waiting period of two or three months is manageable. Beyond three months, particularly on a more mainstream product, becomes more of a challenge.

Is the current average wait time for a Hyundai customer in Europe more than three months now?

It's around that figure. It is not uncommon for the wait time to be three months.

Is it true that a customer could get an i10 or i20 in that time, but an SUV and a full-electric car would take six to 12 months?

You are right. You would get an i10 or i20 quicker. But I wouldn't say that on all Tucsons you would have to wait longer. The lead time is longer for hybrids and plug-in hybrids than it would be on an internal combustion engine version. If a market wants a gasoline Tucson with a manual transmission, we could probably deliver it pretty quickly.

What is the current level of inventories, and what was the norm in the past?

Two and a half to three months was not unusual, both in our central stock and the dealer stock. Now, it is closer to one to one and a half months. This is a record low. I would say critically low if we wanted to have cars in showrooms and wanted to deliver our targeted volume each month.

Do you agree that the registrations do not currently give a clear picture of underlining demand?

It is difficult to see where the demand is now. If I look at our numbers, we could have easily been 20 percent higher than we were at the half-year mark [Hyundai increased registrations 8 percent to 263,000 during the period, according to ACEA]. Demand so far has been clearly stronger than current sales, but you must not overestimate it. If we run with a three- or four-month lead time for three or four months rolling, it probably means the orders we are taking now are more in line with the current registrations. What we are seeing now is that it's not a dramatic slowdown, far from it. But I think there is just a little bit of heat coming out of market demand, which I think isn't a bad thing. I don't think the order banks will continue getting larger.

There are fears that that Europe is heading toward a recession. Have you seen any signs showing this is imminent?

It's not a big concern yet. But I would say that if I looked at the weekly order intake last month versus three months ago, the figure is letting up slightly. It's not dramatic, and different factors could influence it. Therefore, it would be wrong to say this is purely due to economic concerns, but there has been a slight slowdown. It has not gotten to the point where it's concerning, given the order banks we have and the opportunity we have to rebalance. I would be concerned if we were still seeing this slowdown in six months. Right now, it's manageable.

What is your market outlook for the rest of 2022?

The market has the capacity to be up on last year, but we will have to wait and see. At our current pace, we are probably going to see a fairly flat market in the second half of 2022 versus the same period last year. If some of the supply issues ease, maybe we could see a bit of growth in the second half. But in reality, I think is going to stay pretty flat.

If we take 2019 as a base, there has been three years -- 2020, 2021 and 2022 -- which were each one quarter below the previous market level. At this point we should have a pent up demand of nine months, and we are not seeing that. Why not?

You are right. Overall, I don't think there is nine months' worth of pent-up demand. Since I track our numbers much more intently, what I can say is that with a better supply, we would have had a better first half this year than we did in 2019. I'm also confident we would have even beaten our previous record for half-year sales, which was 290,000 in the first half of 2018.

Is the semiconductor shortage easing?

I don't think it's letting up significantly. It's also interesting how it's happening in unpredictable waves. Suddenly, we have a really good supply of semiconductors, which we were struggling with, but then, something else becomes a challenge. The situation is not so different from before, it's just fluctuating a bit. I think we will have some more pain points in the future.

You mentioned the success of the Ioniq 5. The Ioniq 6 will arrive in Europe toward the end of the year, right?

Yes, we will get the first units before the end of the year. We will start taking some orders toward the end of this quarter, so we can make some early deliveries. It will be Q1 2023 before we start to make any volume deliveries.

Will the new Ioniq 7 large SUV be a relatively small volume product in Europe, given the nature of market?

It's a large SUV, so it's not a vehicle that we plan to sell in large volume. Though I'm interested to see just how much demand there will be. The improving technology is generating a lot of interest, and people still want the cargo capacity of an SUV.

Based on the positioning and the success of the Ioniq products, would you consider making it a stand-alone brand?

No. The fact that Hyundai already holds a leading position in alternative powertrains gave strength and credibility to Ioniq as a product line. Building on this with our Ioniq models, this plays well into the rest of the Hyundai lineup. There can only be one brand, and that brand is Hyundai.

What percentage of Hyundai's total sales were full electric in the first half and what is the target for the full year?

In the first half and for the full year, we want zero-emission vehicles to account for 16 percent of our sales in Europe, which would be mostly BEVs [battery-electric vehicles] and a few Nexo hydrogen fuel cell vehicles. We reached that number in the first half, meaning zero-emission cars accounted for almost one out of every six vehicles sold.

What is your outlook for Hyundai's BEV sales next year?

I think it will be around 20 percent. The Ioniq 6 will give us a boost. But we have to be mindful of how much the current supply constraints on other vehicles are driving EV penetration.

Hyundai has been pondering whether to launch of small BEV. When will a decision be made? What is the target price and how difficult will that price be to reach giving the rapid rise in raw materials prices?

It's something that we are considering because smaller vehicles are an important part of the European market. We haven't made any final decision yet, and it's getting a bit more complicated given the rising cost of raw materials. A 20,000-euro target price is a challenge not just for us. Is it realistic? Given the rising materials prices, I think it's becoming more and more difficult. That is something we are going to resolve in the next 12 months. But we envision a small, entry BEV being an important part of our future proposition.

Is there any chance that we see such a product before 2025 or after?

I think it will be after 2025.

Competitors such as Toyota have abandoned the traditional minicar segment, making their entry model a small SUV/crossover. Will Hyundai do the same because this body style provides the chance to charge a higher price and generate a better margin?

We are open to considering the size of the entry vehicle. Is it in the A-segment (minicar)? Is it in the B-segment (small)? Or is it somewhere in between? These are things we are discussing. I can't confirm anything today because we are just starting the discussions.

With rising inflation, customers have less disposable income at a time when car prices are also increasing. Given these constraints, do you see European, Japanese and Korean automakers leaving the entry-level, 15,000-euro segment to a Chinese brand?

We are certainly not in that position right now. We wouldn't want to give up on any part of the mainstream market in which we believed we had a solid customer base and good opportunities. I believe in our ability to achieve that price target. On the other hand, we are also not the least expensive in the sector. We have built our image in Europe on quality, engineering and design. We have price parity with long-established mainstream brands in Europe, which is a strong position for us.

How could you address the lowest part of the market?

There will be opportunities to introduce entry EVs at a price point, which customers will accept. On one hand, if residual values remain healthy, and there is still a product demand, maybe we could move toward leasing or subscription services, where we provide access to entry EV mobility on affordable monthly payments. On the other hand, I think support from European governments is still important to help drive the EV transition. Hopefully, we will see them continue to demonstrate their commitment to carbon neutrality, a topic that we wholeheartedly support.

It seems likely the EU will ban the sale of combustion cars by 2035. Could you envisage Hyundai stopping all combustion car sales in Europe before that date, which is what some competitors have already announced?

It's possible, but it's not in our plan. The biggest challenge in Europe is the disparity across the region. In some of the Central or Eastern European markets, maybe even some of the southern European markets, the 2035 deadline will be a challenge.

You said two years ago everybody was worried about CO2 targets. Now, actually, nobody seems to speak about CO2 targets anymore. Did Hyundai make last year's targets? When will we know the official EU measurements?

In 2020, we had to measure meticulously right until year-end, while last year, we easily achieved our target. We expect it to be even easier in 2022 because of our product mix. We not only have EVs but also plug-in hybrids, which we didn't have in any volume in 2020. Right now, we are not concerned, but that doesn't mean that we are relaxed about our targets. If you aim to reduce your CO2 targets by 55 percent by 2030 versus 2021, it probably means that your lineup is going to have to comprise 65 to 70 percent zero-emission vehicles. That will be tough given the lack of EV infrastructure in some Central and Eastern European markets. But I'm confident we will get there because of our strength in EVs.

The way that emissions will be calculated for plug-in hybrids is likely to change, resulting in higher figures. Will this force you to remove plug-in hybrids from you lineup sooner than planned?

We have already accepted that there won't be any more plug-in hybrids by 2035, but we have yet to calculate, depending on regulations, when they will be discontinued from our lineup. For now, plug-in hybrids are an important part of the solution, and we still have them in our midterm plan. Beyond 2030, it may be more challenging. But we still have a few more years before we commit to either staying with or taking out plug-in hybrids.

Will Hyundai remain a member of ACEA?

ACEA adds great value to the industry, particularly as of late. Of course, not all automakers are aligned on the position for Fit for 55. Some want to achieve it [zero emissions] before 2035; some probably want it later. Despite these differing opinions, I believe it's important that we try to maintain a united front as an industry and work together to combat issues. The industry must have a representative body that can lobby the Commission. Although a number of members have decided to leave after this year, my plan is to remain in ACEA, and no one else has questioned this decision. That's currently our position.