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Morningstar | 005380 Updated Forecasts and Estimates from 15 Apr 2019

Since the darkest days of the global financial crisis, many leading global automakers have struggled with a parade of financial challenges and product recalls. However, the dislocation elsewhere in the industry has been a windfall for Hyundai. The firm has made significant effort to improve its product layouts and has won a number of design awards in recent years. Through the sponsorship of major sports events, such as the 2010 South Africa World Cup, Hyundai Motor's brand value almost doubled between 2009 and 2013, according to consulting company InterBrand. The adoption of integrated production platforms has substantially reduced model development time and costs. The benefits are evident in Hyundai's growing market share. Over the next five years, global automotive demand is likely to grow at mid-single-digit rates. However, competition is growing too. Many global OEMs are building new facilities and expanding existing ones to capitalize on rising demand from emerging markets, such as China, India, Russia, and Southeast Asia. In China, General Motors, Volkswagen, Kia, Nissan, Ford, and Great Wall Motors plan to either open new factories or expand existing ones in 2015. In Mexico, four plants have either recently completed construction or will begin production in early 2015. In Brazil, Renault is adding a new facility, while Fiat is adding capacity. In light of Hyundai's substantial exposure to the low-entry-barrier compact sedan segment, which represented 55% of total sales in 2013, we believe the firm is susceptible to potential price competition. Hyundai Motor's captive finance business has ballooned. The expansion of captive finance allows Hyundai to offer buyers more flexible financing terms, allowing the company to be more competitive. Nonetheless, without a long-term record, we have limited visibility into the captive subsidiary's trade-off between profit maximization and promotion of sales of vehicles.