Hyundai Motor Company Beijing Automotive Joint Venture

PRESENTED BY:
MANURAJ KUMAR VATSAL PANT

Agenda.

Case Study Introduction Hyundai Motor Company Chinas Overview Chinese Automotive Industry Hyundai Financial Analysis Case Solution

Case Introduction.

In 2003, Hyundai had an investment of $250 million in China in conjunction with Beijing Automotive to produce 100,000 units per year

Hyundai projects and planned of production to be 200,000 units per year by 2005

Agenda.

Case Study Introduction Hyundai Motor Company Chinas Overview Chinese Automotive Industry Hyundai Financial Analysis Case Solution

Hyundai History & Development

Established in 1967 and is presently South Koreas #1 car maker, manufacturing dozens of models of cars, vans, and minivans Throughout the past two decades, Hyundai introduced various models: Pony, Excel, Scoupe, Sonata, and Accent. Acquired a 51% stake in Kia Motors in 1998

Hyundai Current Market Share

Agenda.

Case Study Introduction. Hyundai Motor Company Chinas Overview Chinese Automotive Industry Hyundai Financial Analysis Case Solution

China Macro Overview

Chinas doors opened to the world in 1978

Experienced over 20 years unprecedented economic growth

Command economy to market economy Role of State Owned Enterprises (SOEs)

Challenge of dismantling

China and the WTO

After 15 years of attempts, China joined the World Trade Organization on September 15, 2001 Over next 5 years, China will remove barriers to entry

Improve external economic relations Bring in increased competition

Increase speed of economic reform

Economic Performance

Large increases in per capita income Rise in non-state sector activity Growth in exports and domestic demand

GDP (1980-2007)
12000 10000 8000 6000 4000 2000 0 China Hong Kong Taiwan Japan South Korea

19 80 19 84 19 88 19 92 19 96 20 00 20 04

Foreign Direct Investment

During 2002, China was the worlds leading recipient of FDI. China has reduced its import tariff on automobiles and auto parts.

Agenda.

Case Study Introduction. Hyundai Motor Company Chinas Overview Chinese Automotive Industry Hyundai Financial Analysis Case Solution

Chinas Automobile Industry

State of undergrowth

Due to past regulation of Chinese government

Currently about 25 factories

Manufacturers cannot meet quotas

Steady development and progress over last couple years

Yearly increase of 6.63% from 1995

Automotive Industry Outlook

Very promising future

Opening up of Chinese Market Implementation of mass production techniques Increase in manufacturing technology

Agenda.

Case Study Introduction. Hyundai Motor Company Chinas Overview Chinese Automotive Industry Hyundai Financial Analysis Case Solution

Case Study Summary.

Hyundai agreed to pay $250 million in a joint venture with Beijing Automotive.

Starting at 100,000 units in 2003, plans to expand to 200,000 units by 2005. If the production is a success, Hyundai invested $1.1 billion to increase productivity to 500,000 by 2010.

Is the investment in Chinas emerging market a good move by Hyundai?

Project Summary Inputs.

Cash Flows Assumptions:

Invoice prices of the Sonata & Elantra are global prices Hyundais historic profit margin per car of 20%. 50% of revenue would go to Beijing Automotive

Project Summary Inputs.

Production

Starting at 100,000 units, production reached 50,000 till 2005 ultimately producing 200,000 units From 2005 to 2010, production increased 60,000 units per year

Hyundai-Beijing Motor Project Valuation.

DCF Valuation on Hyundai-Bejing Auto Joint Venture in China Year: Units: Elantra: Sonata: 2003 100,000 50,000 50,000 2004 150,000 75,000 75,000 2005 200,000 100,000 100,000 2006 260,000 130,000 130,000 2007 320,000 160,000 160,000 2008 380,000 190,000 190,000 2009 440,000 220,000 220,000 2010 500,000 250,000 250,000

Revenue: In Millions Elantra @ $ 11,274.00 $ 563,700 $ 845,550 $ 1,127,400 $ 1,465,620 $1,803,840 $2,142,060 $2,480,280 $2,818,500 Sonata @ $ 13,822.00 $ 691,100 $ 1,036,650 $ 1,382,200 $ 1,796,860 $2,211,520 $2,626,180 $3,040,840 $3,455,500 Cost: Elantra @ $ 9,019.20 $ Sonata @ $ 11,057.60 $ Profit: Elantra: Sonata: Total: Hyundai's Share 50% Share of Profits: Cost of capital: NPV: Investments: Cashflows: PV of Plant: NPV

450,960 $ 676,440 $ 901,920 $ 1,172,496 $1,443,072 $1,713,648 $1,984,224 $2,254,800 552,880 $ 829,320 $ 1,105,760 $ 1,437,488 $1,769,216 $2,100,944 $2,432,672 $2,764,400

$ $ $

112,740 $ 169,110 $ 225,480 $ 293,124 $ 360,768 $ 428,412 $ 496,056 $ 563,700 138,220 $ 207,330 $ 276,440 $ 359,372 $ 442,304 $ 525,236 $ 608,168 $ 691,100 250,960 $ 376,440 $ 501,920 $ 652,496 $ 803,072 $ 953,648 $1,104,224 $1,254,800

125,480 $ 188,220 $ 250,960 $ 326,248 $ 401,536 $ 476,824 $ 552,112 $ 627,400

13.71% In Millions ($250,000) ($1,100,000) $ 125,480 $ 188,220 $ 250,960 $ 326,248 $ 401,536 $ 476,824 $ 552,112 $ 627,400 $ 110,351 $ 145,569 $ 170,690 $ 195,143 $ 211,218 $ 220,580 $ 224,614 $ 224,468 $152,633.45 POSITIVE!!!!

Project Outlook

In order to be successful:

Must form synergies on all levels with China and Beijing Automotive Hyundai must use their experience in investing in 4 other plants in China Take advantage of the first mover opportunity in Chinas deregulated auto market

Relevance

Great opportunity for Hyundais business development Tremendous global growth potential

Bottom line: There is lots of money to be discovered and made in the emerging markets of Korea and China!!!

Thank You.