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Customer LoginsHyundai opens new plant in China, Honda plans factory for compact cars
Hyundai has opened a new plant in China and Honda is planning a new compact car factory. As the fight for market share increases, automakers in China are also aiming to raise production capacity rapidly to gain from sales growth spurts.
IHS Markit Perspective
- Significance: Without sufficient capacity, automakers are restricted in their ability to respond rapidly to market demand changes, and this is pushing OEMs to raise unit-per-annum capacity in China in the short term.
- Implications: Despite plans to increase production capacity in China, automakers also need to bring in new models to continue to entice local consumers and this may mean the localisation of premium models in addition to mainstream brands' models, as well as hybrid vehicles.
- Outlook: Hyundai plans to further expand with a new plant in Chongqing, construction of which has already started, while the new plant in Cangzhou helps the brand raise output levels; meanwhile, Honda aims to introduce a new plant to reduce a potential production bottleneck.
South Korean automaker Hyundai has opened its fourth plant in China today (18 October). The USD1.77-billion plant, which has a production capacity of 300,000 units per annum (upa), is located 200 kilometres from Beijing in Cangzhou, Hebei province, bringing the brand's annual production capacity to 1.8 million upa in China. The plant has taken four years to complete and represents part of Hyundai Group's effort to bring its annual production capacity in China to more than 2 million upa by the Hyundai and affiliated Kia brands. Speaking at the inauguration event, group chairman Chung Mong-koo stated that annual production capacity of the group has now reached 2.4 million upa in China and this will further rise to 2.7 million upa.
The new Cangzhou plant is built on a 1.92-million-square-metre plot with a floor space of 250,000 square metres, and the plant is operated by the Beijing Hyundai joint venture (JV). The plant incorporates a body shop, paint shop, and assembly lines, as well as an engine plant. The plant will initially produce 200,000 upa, rising to full capacity of 300,000 upa by 2018. The plant will mainly concentrate on production of compact cars.
South Korean news agency Maekung reports that 38 vehicles can be produced per hour at the new Cangzhou plant, under a system utilising 299 robots. The plant has started production of the Verna Yuena, a model tailor-made for Chinese consumers.
Meanwhile, sources at Japanese automaker Honda have revealed that the company plans to expand its foothold in China. Reuters reports that the automaker will open a new factory in China in 2019 to produce passenger cars. The new plant will be located in Wuhan, Hubei province, and will produce 120,000 upa initially, with capacity to double production in the future. The plant will be built under the partnership between Chinese automaker Dongfeng and Honda. Honda said in April it was looking to boost car sales in China to 1.07 million units this year. The automaker sold 1.01 million vehicles in China in 2015, a 33% year-on-year (y/y) increase.
Outlook and implications
Honda, with partner Dongfeng, aims to have annual sales of over 450,000 units in China. The Dongfeng Honda JV currently has two plants in China, both in Wuhan. The plants are forecast to produce over 500,000 units this year alone, IHS Automotive light-vehicle production forecasts show. In 2017, the plants will produce over 550,000 units. Dongfeng Honda plants will by this stage be pushing towards maximum capacity at the Wuhan I and Wuhan II plants, which are estimated to have a production capacity of 300,000 upa per plant. In order to ease pressure on production capabilities, it is therefore likely Dongfeng Honda will expand with a further production base in Wuhan, giving it an additional 120,000-upa capacity initially, with the option of expanding in the future. Honda also has a JV with Guangzhou Automobile Industry Corp (GAC) located in Guangdong province.Additionally, Honda has a wholly owned facility in China, which is solely for exports from the country.
Honda is witnessing strong sales growth in China this year. Honda sold a total of 120,929 units in China during September, marking a 46.5% y/y increase. On a year-to-date (YTD) basis, Honda sold 872,104 units, up 25.5% y/y. The Guangzhou Honda JV sold 63,662 units in September, up 41.1% y/y, while it sold a total of 466,065 units in the YTD, up 10.9% y/y. Meanwhile, Dongfeng Honda sold 57,267 units in September, an increase of 53.0% y/y, and YTD sales were 406,039 units, up 47.9% y/y.
Honda has gained significantly in recent months due to strongly selling models, with the XR-V's sales jumping 21.99% y/y in September and the CRV's sales also up 20% in the month, both produced by Dongfeng Honda. On a YTD basis, the CR-V sold over 134,439 units in China and the XR-V sold over 112,993 units, marking increases of 20.7% y/y and 51% y/y respectively. To gain from this, Honda aims to further enhance capacity to gain from the growth spurt in demand for its models in China.
Meanwhile, Hyundai has plans to boost its presence in China, with another plant in addition to the one opened today in Cangzhou. Hyundai plans to open the new plant in Chongqing in 2017, construction of which began in 2015 (see China: 23 June 2015: Beijing Hyundai breaks ground on Chongqing plant, production to start in 2017). Construction of the plant in Cangzhou began in April 2015.
Hyundai already has three production plants in Beijing with partner Beijing Automotive Industry Corp (BAIC). The Shunyi I, Shunyi II, and Shunyi III plants produced 1.051 million units in 2015, IHS Automotive light-vehicle production data show. With the new Cangzhou plant, the automaker's production will rise to over 1.08 million units this year. In 2017, the new Chongqing plant will likely only have trial production, with volume production commencing in 2018. By 2020, our forecasts show that Hyundai will produce 1.08 million upa in China, dropping slightly from this year's estimates as the Chinese market is set to see intensified competition amid the removal of subsidies which are currently boosting the sale of small-engine vehicles.
To counter competition in the market, Hyundai is launching Genesis as a premium brand in China. The automaker has not formally stated whether these models would be locally produced, but with the added capacity at its bases in China, it would seem likely.
Meanwhile, affiliate Kia is also ramping up capacity in China and is to invest CNY2.9 billion (USD439 million) to expand production at its Dongfeng Yueda Kia (DYK) JV plant in Yancheng, Jiangsu province, adding capacity to the third assembly plant.
About this article
The above article is from IHS Automotive Same-Day Analysis of automotive news, events and trends, and is a deliverable of the World Markets Automotive Service. The service averages thirty stories per day and also provides competitor and country intelligence. Get a free trial.