Hyundai Restarts China Production After Supply Dispute

On Wednesday, the South Korean automaker Hyundai Motor Co. said that it resumed operations at all four plants in China after a dispute in deliveries of necessary parts which caused the extension of production halt, complicating the automaker’s efforts to raise drooping sales in the world’s biggest auto market.

In addition, the supplier resumed providing fuel tanks Wednesday, a spokesman at the South Korean automaker said. Its China plants, three of them in Beijing and one in Changzhou, are gradually returning to production.

Hyundai had to stop the production at its four factories in China earlier this year because of the plunging sales. Its fifth China factory was slated to start production this month.

Weak sales in China caused the automaker to delay payments, resulting in one vendor suspending deliveries of fuel tanks, a Hyundai spokesman on Wednesday. Talks are ongoing with that vendor regarding payments, the spokesman added, refusing to expound more on the amount and whether other suppliers were involved.

The production halt was the latest in the series of challenges that have affected South Korea’s largest automaker in the key market. It added to investors’ concerns after the Hyundai posted its smallest quarterly profit in five years amid political conflicts linked to diplomatic tensions between Seoul and Beijing. This prompted Chinese consumers to avoid Korean cars.

“The effects of the China production halt are yet unclear, but Hyundai’s third-quarter results are likely to be lower than the previous quarter, partly due to continued weak performance in China,” said the analyst, Park-Sang-won.

The automaker has also been struggling by a sedan-heavy lineup as market demand dropped toward SUVs, amid steep discounts by foreign brands and competition from Chinese car maker’s cheaper offerings.

“Hyundai is facing a failure of strategy and weakened competitiveness,” said Lee Hang-koo, a senior research fellow at the state-run Korea Institute for Industrial Economics & Trade in Sejong City, South Korea.

South Korean companies are weathering a Chinese backlash over Seoul’s decision to deploy a U.S. missile defense system, known as Thaad, to deter threats from nuclear-armed North Korea. China says the system poses a threat to its national security.

Hyundai and BAIC, the only Chinese joint-venture partner, have five plants in China with a total capacity to produce more than 1.6 million cars a year. The fifth factory is not operational yet. Beijing Hyundai manufactures more than 10 models, including Elantra sedans and Santra Fe SUVs and recorded 20 trillion won, or  $18 billion in revenue in 2016. Deliveries dropped 42% to 301,000 units in the year to June.

Hyundai shares declined 0.7% to 143,000 won as of 2:05 PM in Seoul, rebounding from a dropped of as much as 3.8%. Shares of BAIC  declined 3.8% in Hong Kong.

On top of the tensions, China banned packaged trips to South Korea by citizens, bolstered customer scrutiny of Korean goods and suspended some discount stores in China run by Lotte Shopping after the retailer provided a golf course for the planned deployment of Thaad.

Hyundai’s weak brand image has put it at a disadvantage in China versus local and global rivals, such as Honda Motor, Toyota Motor, and General Motors, which all saw higher China sales for last month.

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