As the U.S. and Russia prepare for their first high-level talks to end the three-year Russia-Ukraine conflict, attention is turning to Hyundai Motor’s potential buyback (repurchase) of its Russian factory. While conditions for reentering the Russian market may trigger a buyback, some analysts suggest economic factors could make it challenging to execute.
Industry sources reported Tuesday that Hyundai’s buyback deadline for its St. Petersburg factory is set for year-end. Hyundai previously sold the plant, which had halted production due to the Russia-Ukraine war, for 10,000 rubles (about $140) on December 1, 2023.
The sale agreement with the Russian venture capital firm Artfinance included an option for Hyundai to repurchase the factory within two years. Although Hyundai maintains that nothing is finalized, increased car demand or improved market conditions in Russia could strengthen the case for repurchasing the factory and resuming production.
The Russian auto market’s recovery is crucial. According to market research firm Autostat, new car sales in Russia totaled 1,571,272 units last year, a 48.4% year-over-year increase, showing signs of recovery. Russia’s annual auto market has ranged from 1.5 to 2 million units, accounting for about 2% of the global market.
An industry insider noted, “If demand for cars increases in Russia, or if the relationship with Artfinance, which purchased the factory, remains good and the facility is well-maintained, Hyundai may be more inclined to repurchase the factory and resume production.”
The Russian market’s importance in Hyundai’s global strategy also increases the likelihood of activating the buyback option. The Russian plant has an annual production capacity of 200,000 vehicles. Before the shutdown, it primarily manufactured models like the Solaris, Creta, and Kia Rio. The St. Petersburg facility’s proximity to Eastern Europe positions it as a key supply chain hub linking Russia, Central Asia, and Europe.
However, economic factors such as the cost of buyback and production could lead Hyundai to opt out of repurchasing. After selling the plant for just KRW 140,000 ($100), Hyundai would have to repurchase it at current market rates. The factory’s book value is approximately 287 billion won ($200 million). Hyundai faces significant financial pressure, having incurred losses of 1.13 trillion won ($785 million) from its Russian market exit. Additional expenses in the hundreds of millions are expected for plant revival.
Chinese automakers’ success in filling the void left by Hyundai and Western brands during the conflict also complicates market re-entry. Last year, Chinese brands dominated 8 of Russia’s top 10 new car sales spots. For comparison, Nissan sold its Russian assets, including its factory, for 1 euro ($1.40) last October with buyback conditions. Renault also sold its Moscow plant for just 1 ruble ($0.017) in May 2022.
Considering the economic impact, an alternative to Hyundai repurchasing the factory could involve indirectly cooperating with Artfinance or other Russian manufacturers to resume production. Another possible strategy would be to target alternative markets by focusing on neighboring regions like Eastern Europe and Central Asia.
An industry expert predicted that Hyundai will establish a long-term strategy for reentering the market, closely monitoring Nissan and Renault until geopolitical risks are resolved. However, they noted that the pressure of deciding to execute astronomical investments within the short buyback deadline would be a significant burden.
