Chinese Joint Venture of South Korean Automaker Kia Faces Financial Crisis

Ads for South Korean automotive giant Kia have appeared frequently on the sidelines at the ongoing FIFA World Cup in Qatar, bringing the brand back into the spotlight in China. However, its joint venture in the country is now grappling with a financial crisis.

From January to October this year, Kia sold 78,000 vehicles in China, down over 40% year-on-year. Only 6,758 vehicles were sold in October. As of the end of the third quarter, the total liabilities of Yueda Kia, the name of the joint venture, reached 2.2792 trillion won ($1.74 billion), which exceeded the total assets of 2.1240 trillion won. The asset-liability ratio reached 107.3%, only 3.5% lower than GAC FCA, a joint venture between GAC Group and Stellantis, which just announced its bankruptcy liquidation.

Kia’s sluggish sales in China have lasted several years. In 2017, Kia saw its first sharp drop in sales in the Chinese market, with annual sales falling by 44% year-on-year, but Kia still sold 360,000 vehicles annually at that time. Since then, Kia’s Chinese market performance has been continuously declining. Under these losses, Dongfeng Motor, one of the investors of the joint venture, chose to withdraw in January this year, and Dongfeng Yueda Kia, which has been operating in the Chinese market for nearly 20 years, was renamed Yueda Kia.

Looking at its performance across the whole world, Kia’s performance is still very bright. In 2021, the firm sold 2.242 million new cars in markets outside its domestic market, which was equal to Mercedes-Benz’s global sales. In the Korean market, Kia’s cumulative sales volume has exceeded 15 million vehicles this year.

Cui Dongshu, the secretary-general of the China Passenger Car Association, said he believed that the main reason why Kia, which has performed well in overseas markets, cannot be recognized by China, the world’s largest automobile consumer market, is that the technology and products were not updated in time. According to the statistics of the association, South Korean auto brands, which once sold 1.7 million vehicles, now only have a 2% market share in China.

In the field of traditional automobiles, Kia’s gearbox and engine technology have not been updated, and the problem of weak power has not been effectively solved, resulting in a market reputation of poor power and outdated technology for Chinese consumers.

Kia, which has been slow to meet the industry’s electrific transformation, has no advantage in the new energy vehicle market. According to the company’s plan, six pure electric models will be launched in the Chinese market from 2023 to 2027. In contrast, Volkswagen plans to launch at least 40 pure electric models in the country by 2025, and Toyota and Honda also indicated at the beginning of this year that they would produce 30 pure electric models.

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Despite its obvious disadvantages, Kia has not given up on improving its performance, but such efforts have had little effect so far. In April 2021, the firm announced a brand-new logo and made a series of adjustments related to brand development, customer operations and product planning strategy in China, hoping to reverse the decline.

In order to cater to the tastes of Chinese consumers, Kia introduced its fourth-generation Carnival model, which is popular in North America, assuming that this car’s MPV and SUV characteristics would be favored by Chinese consumers. However, the Carnival was criticized for its strange appearance and ordinary parameters. This year, the firm released its “New Kia” plan, setting a goal to produce and sell more than 4 million vehicles in China throughout the next decade.