SD Motors expects local assembly of Hyundai to increase - MIDA | Malaysian Investment Development Authority
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SD Motors expects local assembly of Hyundai to increase

SD Motors expects local assembly of Hyundai to increase

25 Jan 2021

Sime Darby Motors Bhd expects the local assembly of Hyundai models at its Inokom plant in Kulim, Kedah, to increase despite the South Korean automotive giant moving its Asia-Pacific headquarters to Indonesia from Petaling Jaya by the end of 2021.

This is because the production of right-hand kits in Hyundai’s new plant in Indonesia will lead to tax savings even for the Malaysian market, and this is expected to increase the volume of Inokom’s assembly of Hyundai cars.

SD Motors owns Hyundai-Sime Darby Motors Sdn Bhd (HSDM), which is the sole distributor and exclusive importer of Hyundai cars in Malaysia. SD Motors is part of the Sime Darby Bhd group.

“HSDM has plans to introduce several fully imported models to the Malaysian market in 2021, followed by locally assembled SUV models in 2022. These award-winning models are highly anticipated models with great success in sales volume during their recent global launches,” a spokesperson of SD Motors tells The Edge.

“Meanwhile, our Hyundai assembly operation aims to continue assembling Hyundai models for the domestic market.

“In fact, with Hyundai’s new plant in Indonesia expected to produce right-hand drive assembly kits, which brings added value through tax savings for sales of vehicles, we look forward to increasing our assembly volume for Hyundai vehicles at Inokom.”

The kits are now made in South Korea and are subject to tariffs. If they are made in Indonesia — an Asean member — there will be no tariffs on the kits.

According to the spokesperson, SD Motors anticipates that more interesting products will be introduced to the Malaysian market this year onwards, following the launch of the fully imported models from South Korea such as the Kona crossover, the Elantra and the Sonata sedans.

This will involve planning for the local assembly of new models at Inokom, the spokesperson adds.

Currently, SD Motors is assembling the Santa Fe SUV at the Inokom plant for domestic markets. The group confirms that there will be more complete knocked-down (CKD) projects in the pipeline as its product line-up grows in the future.

As at last November, 1,307 Hyundai cars were sold in Malaysia, which was 37% lower than the 2,085 units sold during the same period in 2019.

In November 2019, Hyundai announced that it had decided to build its first plant in Southeast Asia in Bekasi, near Jakarta, with an investment of US$1.55 billion. The plant will have an initial production capacity of 150,000 units, with half of the production for the export market.

Hyundai also said then that its Indonesian plant will start operating in the second half of this year, as the construction had reached 60%. The plant will eventually be expanded to produce 250,000 units a year.

South Korean automotive brands have long lagged the Japanese in the Southeast Asian market. In 2019, Hyundai and Kia sold a total of 184,595 units, placing them far behind Japanese brands, which sold 2.63 million units.

With the opening of the Indonesian plant, however, Hyundai’s market share is expected to continue to rise in the future. This is because the kits being produced in Southeast Asia will allow Hyundai to avoid tariffs of between 5% and 80%.

Indonesia has been receiving attention from carmakers over the last decade, fast becoming the destination of choice for local production and assembly. In 2019, Toyota said that it would invest US$2 billion between 2019 and 2023 in Indonesia, especially in the production of electric vehicles (EV).

The republic had also signed a US$9.8 billion deal with LG Energy Solution, the second-largest EV battery producer in the world, to develop an integrated EV battery industry. Indonesia is also eager to attract Tesla to produce EV batteries in the country.

The slew of investments into Indonesia begs the question of what Indonesia has that Malaysia does not, with the archipelago attracting automotive investments despite Malaysia having good infrastructure and a competitive automotive ecosystem.

After all, Malaysia is the second most attractive market for automotive investment in Asia, behind only China, and ahead of countries such as Thailand, South Korea, Taiwan, Japan and Indonesia, according to Fitch Solutions Country Risk and Industry Research.

In a recent Autos Production Risk/Reward Index published on Jan 11, Fitch Solutions states that improvements in the cost and availability of utilities have led to Malaysia’s high ranking in Asia.

“Our Operational Risk team notes that relative to many of its regional peers, such as Singapore and Hong Kong, Malaysia is richly endowed with natural resources, benefiting businesses with the widespread availability of reliable and affordable utilities, particularly fuel and electricity,” the report states.

“Our Power team highlights that in Malaysia, power capacity and generation have grown rapidly over the last five years to keep up with the country’s rising power demand.

“This means that automakers looking to set up shop in the country will have access to relatively low-cost utilities, which will set Malaysia above the likes of India, a market that struggles to provide sufficient utilities at affordable rates,” the report adds.

However, Indonesia continues to clinch automotive investments, despite only placing eighth in the region, with a risk-reward index of 58.1, compared with Malaysia’s risk-reward index of 70.1. The scores are out of 100, with the country with a higher score being more attractive.

In 2019, Indonesia produced 1.29 million units of cars, more than double Malaysia’s production of 571,632 units. With the likes of Toyota and Hyundai investing in a big way in Indonesia, its car production numbers are expected to continue to rise.

Despite having a government that encourages investments in the automotive industry, Indonesia’s strengths are in its low cost of labour. Fitch Solutions rates Indonesia’s average labour cost score at 94.6 out of a possible 100, making it the second-cheapest labour market in Asia after India.

According to Fitch Solutions’ Autos Production Risk/Reward Index, Malaysia’s labour cost score is at 73.2, which means that its labour cost is higher than that of Indonesia, Vietnam and Thailand in Southeast Asia, but lower than that of the Philippines.

Meanwhile, Indonesia’s ample natural resources is also one of the factors that has attracted investments into the country’s automotive industry. Indonesia is the largest producer of nickel, which is used in the production of EV batteries — a fact that is promoted by its government to continue securing investments for the country.

Source: The Edge Markets