With a deep understanding of Indian consumers and a focus on localisation, Hyundai and Kia have become household names. But now, they must reinvent themselves to maintain the edge in a market they helped shape.
27 Oct 2024 | 8960 Views | By Prerna Lidhoo, Shahkar Abidi
Every country invested in automotive manufacturing brings with it more than just metal and machinery— they weave a tangible expression of their culture, and a slice of who they are, into the very character of their cars. Italy, famous for its romance and beauty, is known to craft vehicles where ...
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Every country invested in automotive manufacturing brings with it more than just metal and machinery— they weave a tangible expression of their culture, and a slice of who they are, into the very character of their cars. Italy, famous for its romance and beauty, is known to craft vehicles where every curve is a work of art, a mix of passion with performance.
The Germans, renowned for their precision, offer sleek and modern machines, almost clinical in their perfection. Japanese automakers, by contrast, built their global reputation on reliability, simplicity, and innovative practical-use cars. And then there’s Korea — a country that wasn’t even in the conversation about world class cars, untill a few decades ago.
Hyundai and Kia entered the conversation offering something unexpected: cars that are both affordable and functional, yet aspirational. Think of the Hyundai Creta, a car that quickly became a status symbol in middle-class households, not because it was flashy, but because it had the right balance. With their understanding of what modern consumers want, Korean cars have carved out a space where others stumbled. It’s no accident that their cultural exports — the music, dramas, and fashion — are also winning hearts globally. In a world where cars are as much about lifestyle as about utility, Hyundai and Kia are selling vehicles tailored to India’s sensibilities.
Hyundai's journey has always been rooted in resilience, a spirit embedded in South Korea's own remarkable rise, from post-war devastation to an economic powerhouse. From building the iconic Gyeongbu Expressway under the leadership of Hyundai’s founding chairman, Ju-yung Chung, to developing South Korea’s first domestically produced car, the Hyundai Pony, the company has been at the heart of the country's industrial success. Now, as Hyundai prepares for its IPO in India and Kia is gearing up for its next phase of growth, their Korean DNA positions them to scale even greater heights in the evolving Indian market.
Understanding India's Pulse
Hyundai and Kia’s success isn’t just about flashy marketing—it is about understanding India’s rapidly evolving preferences. They recognised that Indian consumers wanted more than just functional vehicles; they wanted style, tech, and comfort in one package. Hyundai’s Creta and Kia’s Seltos, with their compact, yet spacious designs, delivered just that.
These SUVs hit the sweet spot, offering the right mix of ruggedness and sophistication, perfectly suited to India’s urban and semi-urban landscapes. From their customer service to their after-sales support, these brands built trust and reliability, becoming household names.
According to Tarun Garg, Chief Operating Officer of Hyundai Motor India, the Korean carmaker’s success in the Indian automotive market, can largely be attributed to its deep respect for local consumer needs and preferences. From the inception of the Santro, which featured a tall-boy design to accommodate Indian women wearing sarees, to the introduction of high-ground clearance vehicles, Hyundai has consistently prioritised India-specific requirements.
“We have never taken our foothold in India for granted. Innovations like power steering and the CRDi diesel engine were introduced at critical moments, allowing us to capture a broader segment of the market, particularly with models like the Creta that elevated the brand from small cars to higher price points,” he adds.
When Hyundai set its sights on India in 1997, Korean brands were just beginning to capture the attention of Indian consumers. While companies like Samsung and LG had made inroads in the consumer electronics market, the automotive scene was crowded with global heavyweights like Ford, General Motors, and Mercedes-Benz, all eager to capitalise on the post-1991 liberalisation of India’s economy. But Hyundai wasted no time in distinguishing itself from the competition.
Hyundai developed a car specifically tailored for India’s unique market, offering a host of firsts for Indian consumers. It introduced a multi-port fuel injection engine with three valves — a significant upgrade over the carburetor engines that were standard in the entry-level segment. Features like power steering and rear seat belts, previously considered luxury add-ons, became accessible to the average Indian buyer, setting Hyundai apart as an innovator.
According to Ashim Sharma, Senior Partner at Nomura Research Institute, the broad reasons for the success of players, whether Korean or others, have been the perception of value for money (including the brand's aspirational value, mileage and reliability), and the depth and width of their portfolios that enable them to cater to various consumers price points, including a smart variant strategy.
“They have a well-developed sales and service network, which has been the difference between those that have had a good short run for a product (mainly in large cities) vs those who have had sustained momentum across the country. These factors, in turn, also support higher resale prices, and thereby kick off a virtuous cycle. Korean OEMs were also able to latch on to the SUV trend early, which has helped sales,” he says.
Hyundai’s Chennai plant played a critical role in its success. The automaker brought in South Korean suppliers and vendors to localise the manufacturing process, while maintaining international standards. This allowed Hyundai to control costs effectively, without compromising on quality, especially for key components like body parts, headlights, and engines.
Another strategy that worked for the Korean players in India was premiumisation, as Indian consumers began to see cars like the Hyundai Creta and Kia Seltos as status symbols that didn’t break the bank.
Garg highlighted that as the country becomes younger, aspirations are increasingly influencing buying decisions. Customers are prioritising design, features, and safety over mere price, leading to a rise in the popularity of SUVs, even among first-time buyers who traditionally opted for smaller hatchbacks. Currently, around 25% of purchases are driven by this aspiration for higher-quality vehicles, with SUV penetration among first-time buyers rising dramatically. The rural market is also showing a strong appetite for SUVs, matching urban demand, which reflects a broader trend of increased aspirations across demographics.
In a world that is increasingly connected, Hyundai and Kia also managed to tap into India’s tech-savvy youth. With features like advanced infotainment systems, wireless connectivity, and futuristic design, their cars felt more like gadgets on wheels.
Hyundai says it will continue to push premiumisation. “As infotainment and software-defined vehicles are becoming more and more popular, HMC's capabilities in these areas will again open up more opportunities for us in terms of improving the premiumisation even further,” Garg says.
Another key contributor to the success of the Korean carmakers has been localisation, with Hyundai sourcing around 80% of components from local suppliers. The number is in the same ballpark for Kia. This not only optimises costs, but also mitigates risks associated with geopolitical developments. With nearly 200 Tier I vendors — a mix of global and local partners, Hyundai has streamlined its supply chain to be highly efficient and responsive to local needs, Garg says. It will also focus on increasing its market share in EVs, where it lags behind Tata Motors, and add to the charging network.
The Mega IPO
Having achieved market success with Indianised products, Hyundai is now taking the next step – that of Indianising the company itself. And it has found a way to do it while also ensuring it gets the funds for powering its next phase of growth — bringing onboard the Indian public as shareholders.
“We believe it's time to further 'Indianise' our operations,” says Garg. “This will mean not only enhancing our manufacturing capacity, with the Pune plant set to ramp up its production by 30% in the second half of next year, but also ensuring that Indian investors become part of our growth narrative.” With the help of the IPO proceeds, Garg points out, Hyundai would be able to accelerate product launches in India, enhance its R&D capabilities, and introduce cutting-edge technologies.
“This multifaceted approach will make us more attuned to the Indian market,” he notes. “We are a complete player, not only an SUV player,” Garg points out. “We have sedans, Verna and Aura are doing very well. We have hatches. In powertrains, we have CNG, which is becoming more and more popular. We have petrol, diesel and EVs. This IPO is probably one more of that accelerator, which will propel our future journey in India.”
Unsoo Kim, CEO of Hyundai Motor India, says the IPO would ensure that the company is even more dedicated to its success in India. “HMC will invest aggressively in new car products, future advanced technology and R&D capability for Hyundai Motor India,” he notes.
Under the offer, the Korean parent will offload 17.5% of its shareholding in the Indian unit, raising around Rs 27,000 crore and making it the biggest ever fund-raising in the history of India’s equity market.
However, after more than two decades of solid growth in the Indian market, this raises the question: why is Hyundai choosing to pursue an IPO now?
“There's no right answer as to when the right time to go for an IPO is,” says Geetanjali Kedia, IPO Expert & Investment Adviser at SPTulsian Investment Advisory Services. “It has grown its top line with a 9% net margin, a debt-free balance sheet and a high return ratio. It is a cashrich company, it doesn't need cash.”
From Hyundai’s perspective, the decision appears strategic. As the global automotive industry undergoes a massive shift towards electrification and smart mobility, Hyundai’s decision to launch an IPO in India, after over two decades in the market, is seen as a calculated move. India, one of the world’s largest automotive markets, presents Hyundai with a vital opportunity to secure its future amidst this transition.
The IPO isn't just about raising capital; it's about signaling Hyundai's commitment to evolving with the times, much like it has done throughout its history. Secondly, the listing is likely to help the company’s valuation. With their stock in South Korea currently trading at a low 5x P/E ratio, a listing in India at nearly five times that valuation is expected to have a ruboff effect on the parent’s stock price as well.
Yet another reason could lie in the geopolitical challenges it faces elsewhere. Between 2016 and 2022, Hyundai Motor’s Chinese revenues plummeted by 76%, according to Seoul-based market research firm CEO Score. This sharp decline followed an unofficial embargo by Beijing on Korean products, retaliating against South Korea’s decision to deploy a U.S. missile defense system.
With China no longer the reliable growth engine it once was, Hyundai appears to be betting big on India, a market where it has maintained strong growth and deep consumer trust. By going public in India now, Hyundai is not only seeking to raise capital but also solidifying its long-term commitment to one of the world's most important automotive markets at a time when its global strategy is shifting away from troubled regions like China. The IPO is an acknowledgment that Hyundai’s future could rely more heavily on India than ever before.
The company already views India as its critical growth market, and has established two manufacturing plants and invested USD 5 billion. It has plans to inject an additional USD 4 billion over the next decade. This commitment reflects the company's long-term vision for India as a key player in its global strategy. The company holds a 14.5% share of the passenger car market in India, according to data from the Society of Indian Automobile Manufacturers (SIAM), compared to market leader Maruti Suzuki's dominant 41.7% and Tata Motors' 13.8%. Despite fierce competition, Hyundai is positioning itself for aggressive expansion, particularly in the electric vehicle (EV) space.
A significant portion of the IPO proceeds will be directed towards launching electric vehicles in India, establishing a robust charging network, and building a battery facility. Hyundai aims to transform India into a global export hub, capitalising on the country's growing manufacturing capabilities and strategic location. Over the next four years, the company plans to introduce nearly half a dozen electric vehicles for both local sales and export, supported by new assembly lines in its Indian plants.
“We position HMI as a production hub for emerging markets in the Middle East, Africa, South Asia, Central and South America. We are manufacturing and exporting cost-optimised vehicles to more than 80 countries,” Garg points out. He adds that currently, they have around eight lakh capacity in Chennai plant. “We are seeing the domestic and export demand is increasing. So, to meet those demands, we acquired the Talegaon plant. After the operationalisation of the Talegaon plant, our capacity will reach 1.1 million. This will meet both domestic and export volumes,” he says.
Despite the excitement surrounding the IPO, some analysts are cautious. A report by Aequitas Investments highlights the global headwinds facing the automotive industry and signs of a slowdown in India. The company has sold 5.77 lakh units in India so far, which is flat compared to last year. This could make the Rs 27,000-crore IPO less attractive for Indian investors. Another key concern is the significant valuation discrepancy. Although Hyundai's India unit contributes just 6.5% to global revenues and 8% to profitability, it will account for 42% of Hyundai’s overall market capitalisation upon listing.
However, Geetanjali Kedia of SPTulsian Investment Advisory Services, is not daunted. “Maruti is also getting a higher multiple in India versus Suzuki in Japan. And this is the case with most companies in engineering. If you look at ABB, Cummins and Siemens, their Indian units command much higher premiums versus their parents. So it is a function of the Indian markets, because we see growth here, or we see that risk appetite,” Kedia explains.
Kia’s Expansion Plans
The second major Korean brand in India’s auto landscape is Kia Motors, which is 34% owned by Hyundai. It entered the Indian market late, in 2019, but adopted a very similar strategy to its sister company – delivering vehicles tailored to local preferences, prioritising affordability, modern design, and advanced technology. The company started with the Seltos, a compact SUV that quickly gained popularity for its features and stylish appeal. Like Hyundai Kia emphasised localisation in manufacturing to keep costs competitive while ensuring high quality. Additionally, strong marketing initiatives and a focus on building a robust dealer network helped Kia break into the top 5.
“It's been an incredible journey, one that probably surpassed expectations,” remembers Gwanggu Lee, Managing Director and CEO of Kia India, who is no stranger to the South Asian nation. His first experience of India was back in 1998, when he was involved in launching Hyundai Santro. He notes that current circumstances are more positive. “I remember the challenges Hyundai faced during its early days, and I'm grateful for the support Kia has received in establishing our brand here,” he says.
Hardeep Singh Brar, who heads sales & marketing at Kia India, points out that the company adopted a top-down strategy in India: “We established premium products, and then came down to the mass market.”
CEO Lee emphasises that the success of Kia in India is unique, as he has witnessed various economic cycles in his career, from the financial crisis in Korea in 1997 to the European crisis in 2008. “Every company faces challenges, but the last five years have been just the beginning of our story. We have to prepare for the next phase of our growth,” he states confidently.
Gwanggu Lee Managing Director and CEO, Kia India
Kia has ambitious expansion plans in India, focusing on enhancing its production capacity and diversifying its product lineup. Starting in 2024, the company aims to increase its annual production capacity from 340,000 to 430,000 units. Additionally, Kia is planning to open around 100 new sales outlets, particularly targeting tier III and IV towns to bolster its market presence. Cognisant of India's growing electric vehicle market, Kia intends to begin local manufacturing of mass-segment EVs by 2025. The goal is to introduce new electric models each year, aiming for a 15-17% share of the EV market by 2030.
Looking ahead, Lee sets an ambitious volume goal for Kia India: “Our target is to reach 400,000 units by 2030, aligning with our global vision.”
He added that the innovations Kia is introducing will extend beyond its high-end models. “These technologies are set to feature in our upcoming mass-market products, making advanced features accessible to a broader audience in India,” he says. He plans to include a wider array of mass-market models to solidify Kia's identity as the leading brand in the SUV and recreational vehicle (RV) segments in India, with models like the Seltos and Carnival leading the charge.
EV Transition and Challenges
Even as the Korean brands can claim credit for having understood the Indian auto consumer’s pulse, it is also a fact that the two brands are a considerable distance behind players such as Tata Motors and JSW MG Motor in EVs. Kia currently has two EVs available in India, the EV6, and the EV9, while Hyundai has launched the Hyundai Kona Electric and the recently launched IONIQ 5.
The market is currently dominated by home-grown automaker Tata Motors, which accounts for nearly two thirds of the total sales, while Chinese EV makers — who seem virtually unstoppable on a global scale — seem ready to bring the Indian market under their control as well.
Felipe Munoz, Global Automotive Analyst, JATO Dynamics says it’s imperative for the Korean brands to go full throttle in the EV market without wasting any more time. “There is a new EV race starting to happen in India with Tata and Mahindra already ahead of the curve It’s time for the leaders to wake up. The way forward for Korean car makers in terms of alternate powertrain strategy is going to be electric. Korea has an advantage of batteries. Instead of going hybrid or investing in petrol cars, the logical thing would be to invest in EVs,” he says.
Kia’s Lee acknowledges that there is significant enthusiasm for electrification in India, but views the current optimism as somewhat premature. “India needs substantial foundational infrastructure to support electrification, alongside advancements in battery technology, and government policies must align with these developments.
But India is embracing electrification at a rapid pace,” he says. Lee believes electrification represents a structural trend, but it requires careful timing, as customers will need time to adjust to new technologies, and infrastructure must evolve to effectively support these changes.
“Balancing market conditions with emerging trends is what presents challenges,” he says, adding that the company is investing in its Electric-Global Modular Platform (E-GMP) to address this market and will launch its first mass-market EV in India in 2025.
Meanwhile, Hyundai Motor India is planning on tapping its Korean parent’s EV and battery technology. “We are developing an EV ecosystem in India, and are planning to launch four EV models across the mass and the premium segment, including our Creta EV in Q4 this financial year,” CEO Kim says. The company is currently busy localising the supply chain — including the battery pack, drivetrain and the battery, and investing in EV charging infrastructure.
The idea, he said, is to transition from a niche player to a significant contender. “The Creta, which has become an iconic model in the ICE internal combustion segment, is set to evolve with the introduction of the Creta EV. We are partnering with Indian vendors for LFP cell manufacturing, and exploring advancements in power electronics and drivetrain systems,” he adds.
At the same time, Hyundai will continue to offer a range of powertrain options. In the entry-level segment, Hyundai provides petrol and CNG variants to cater to price-sensitive customers, with CNG penetration reaching 85% in models like the Aura and expected to rise in the Exter following the introduction of dualcylinder CNG systems. Currently, CNG contributes approximately 13% to overall sales, while diesel accounts for about 17%. Hyundai too points out that India is still in the early stages of electrification, with penetration at just 2.3%.
“Government incentives, such as GST reductions and initiatives to develop charging infrastructure, will accelerate the adoption of electric vehicles,” Garg says. As for hybrids, Kia’s Brar is of the opinion that the industry needs to focus its resources in one direction and achieve economies of scale.
“Given the significant investments made in EV development, all efforts should be directed toward making EVs successful. One of the factors contributing to the current slowdown in demand for EVs is that the price gap between internal combustion engine (ICE) vehicles and EVs stands at around 40-50%, while consumer expectations hover around a 20% difference. Bridging this gap is crucial for boosting EV adoption,” he says.
The EV market, in a way, exemplifies the weakness of the Koreans’ approach, who have been more conservative compared to home-grown rivals Tata Motors and Mahindra & Mahindra, both of which have been snapping at the heels of Hyundai for quite some time. “In the Indian market, you need to enter new categories every year,” points out Gaurav Vangaal, Associate Director at S&P Global Mobility.
“Both Hyundai and Kia haven’t done that as aggressively as the competition. It’s easier for M&M and Tata Motors to innovate, because their decision-making is more localised, while Hyundai still needs approval from the global team.“ The two Indian players surpassed Hyundai in car and SUV sales for the first time in over 15 years in 2022, boosted by a variety of factors such as a robust portfolio of SUVs, a preference for Indian brands, and improvements in their product portfolio and quality. In fact, in September 2024, M&M’s sales were only 39 units short of Hyundai’s 51,101. Going forward, the Korean brands’ ability to retain market share in the face of rising competition from Indian players will depend on strategic investments and adaptability in a fast-evolving market, he said.
“The market will move where there’s more product action. And carmakers need deep pockets to launch new products. Local players today are pumping money into the supply chain. They have enough investments to ensure that they’re able to sustain their lead on the back of successful SUVs, and for the first time in over two decades, Hyundai is being challenged so aggressively," he added.
The road ahead for Hyundai and Kia in India is both promising and challenging. As India's auto market stands at the cusp of an electric revolution, Hyundai and Kia find themselves at a critical juncture. Their journey fro newcomers to market leaders has been remarkable, but their true test will be how well they navigate the shift to EVs while fending off competition from both global and local players.
This feature was first published in Autocar Professional's October 15, 2024 issue.