GM-Hyundai Joint Ventures No Guarantee of Success

General Motors and Hyundai Motor Co. ink a deal resulting in the two companies developing new-energy projects and investments together ranging from new vehicles, joint production, powertrain and platform production, as well as emerging battery- and hydrogen -power mobility and distribution, investments in raw materials and more.

The cooperation between the two companies comes after several deals in the industry have been cut to reduce development costs for new vehicles – both aimed at consumers and the commercial markets.

Indeed, the GM-Hyundai agreement comes on the heels of a cooperation deal between Honda and Nissan to explore joint partnerships, a deal that Mitsubishi also signed on to last month. Ford and Volkswagen have a cooperative deal that has had some fits and starts but resulted in the Tourneo Connect with the engineering and manufacturing being led by VW, working in close partnership with Ford’s design team, which created the Tourneo Connect’s unique exterior and interior design features. VW also recently struck a deal with Rivian to create a joint venture that will focus on developing software and electronics for electric vehicles. The arrangement is expected to give both companies an equal stake in the joint venture, with Volkswagen making an initial investment of $1 billion in Rivian.

The potentially far-reaching deal between GM and Hyundai, the benefits of which will take years to bring to fruition, spotlights the pressure automakers and suppliers are under to reduce costs and scale up technology to meet the demands of regulators, especially in North America and the European Union countries, and fend off rapidly growing competition from lower-cost EV companies from China.

One of the areas both companies need help in is in recruiting top software engineers to develop software-defined vehicles (SDVs). Recruiting such engineers for auto companies when the salaries and cultures at software, electronics and other Silicon Valley companies ranging from Apple to Meta to Samsung and LG and every kind of business in between typically pay higher salaries and have cultures more conducive to their talents has proved to be a big challenge.

GM CEO Mary Barra and Hyundai Motor Group Executive Chairman Euisun Chung signed a memorandum of understanding to immediately assess areas of cooperation and possible binding agreements, the two companies announce in a joint news release.

Barra says collaboration has the potential to enable “disciplined capital allocation.” Cost reduction and increased scale are key priorities, the companies say.

“This partnership will enable Hyundai Motor and GM to evaluate opportunities to enhance competitiveness in key markets and vehicle segments, as well as drive cost efficiencies and provide stronger customer value through our combined expertise and innovative technologies,” Chung says.

The deal makes no mention of Hyundai’s Kia brand, but as Hyundai and Kia have long jointly developed platforms, shared technology and manufacturing facilities, it seems likely that the fruits of the collaboration would impact Kia Motors as well.

There are significant capital outlays to make now in the emerging spaces of EVs and hydrogen that will not be profitable soon, while GM, for example, continues to bankroll its capital expenditures with sales of high-profit internal-combustion-engine-powered trucks and SUVs.

Hyundai is somewhat bedeviled in that it does not have a viable pickup truck business, though it does have a promising family of SUVs and CUVs that has driven its growth in recent years. It remains to be seen if GM will share its pickup, fullsize SUV or midsize pickup platforms and production capacity in North America with Hyundai.

The potential breadth of the collaboration seems very promising, but the proof will be in the outcomes. GM has a long and troubled history making joint ventures work with other automakers because of culture clashes and poor results, some of which involved equity stakes.

A string of JVs formed in the 1980s and ’90s had troubled lives and outcomes – deals struck with Toyota, Isuzu, Suzuki and Subaru to supply GM with lower-cost small cars it could not make profitably in North America. Those deals resulted in GM and Toyota making Toyota, Chevy and Pontiac vehicles in Fremont, CA, where Tesla now makes vehicles, as well as vehicles sold under Chevrolet and the short-lived Geo brand with Isuzu and Suzuki. GM ended the deals for a variety of reasons, including persistent culture clashes that cost valuable enterprise time and resources.

It may help that GM President Mark Reuss and CEO Barra lived through all of those deals.

Guggenheim Securities’ John Casesa told Wards last month at the CAR Management Briefing Seminars that automakers, especially the Detroit Three, need to get better at managing JVs that lower development costs, make capital allocations more efficient and timely and result in high-quality, profitable EVs. “This is not an easy task for companies like Ford and GM, because of their cultures of ‘not-invented-here’ costs jobs,” says Casesa, who has worked at both GM and Ford.

Stellantis, which merged the brands and operations of Fiat Chrysler Automobiles and Peugeot, is looking to spread development, distribution and tech-development costs across businesses that it actually bought to avoid the obstacles of JVs. It is struggling to make these potential benefits of scale work, with sales and profits of Ram and Jeep dropping and its European brands showing signs of weakness as well.

More recently, GM struck a deal with Honda to develop EVs, a short-lived arrangement that ended before the Japanese automaker launched two EVs, the Honda Prologue and Acura ZDX, on GM’s Ultium EV platform.

Outside of its cost-sharing with Kia Motors and a JV with Beijing Hyundai Motor Co. (BHMC) in China, Hyundai hasn’t partnered much with other auto companies. Hyundai collaborated with Ford in the 1980s on producing vehicles based on shared platforms. For instance, the Hyundai Pony was derived from the Ford Cortina.

Hyundai had a long-standing partnership with Mitsubishi Motors. This collaboration was primarily focused on sharing technology and platforms, especially in the early stages of Hyundai's development. Mitsubishi provided technical assistance and licensed its technologies to Hyundai in the 1970s and 1980s, helping Hyundai develop its own line of vehicles.

Those deals are dated, though, and have been long over.

Hyundai leads with BEVs such as Ioniq 5 N.

Hyundai and GM are both showing profit momentum, so they are both entering the new deal in strong positions. In its latest fiscal year, Hyundai Motor Company reported robust financial results. The company achieved revenue of KRW 162.7 trillion ($121.5 billion), a 14.4% increase compared to the previous year. Hyundai's operating profit also saw significant growth, rising 54% to reach KRW 15.1 trillion ($11.3 billion). Net profit for the year was KRW 12.3 trillion ($9.1 billion), also up 54% year over year.

GM reported 2023 revenue of $171.8 billion, which represents a notable performance for the year. The company's net income attributable to stockholders was $10.1 billion, while its adjusted EBIT (Earnings Before Interest and Taxes) stood at $12.4 billion.

Given the enormous investments still needed for SDVs, electrified vehicles and hydrogen-powered vehicles and distribution, as well as investments needed in EV charging and hydrogen distribution, GM and Hyundai are highly motivated to strike deals with what they consider the best partners before there are no chairs to sit on when the music stops.