Hyundai to join Lucid building cars in Saudi Arabia

Hyundai expects to produce up to 50,000 internal combustion and electric vehicles annually locally starting as early as 2026, with an investment estimated at more than $500 million.

The new business venture will be majority-owned at 70% by Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF), while the South Korean carmaker will control the remaining minority stake.

“We are excited about the potential of this joint venture to drive significant advances in vehicle production and foster a sustainable and environmentally friendly vehicle future in the region,” Hyundai Motor CEO Jaehoon Chang said in a statement. statement.

Hyundai did not elaborate on whether it would invest its own capital into the project, or whether its 30% stake reflected a non-cash in-kind contribution, such as through a planned transfer of knowledge and expertise. No location has been specified, but Jeddah, the country’s economic hub, would be a prime candidate.

rapid economic growth

Saudi Arabia became the world’s fastest-growing G20 country last year, thanks in large part to gains its flagship state oil producer Aramco reaped from a surge in energy prices triggered by Russian President Vladimir Putin’s invasion of Ukraine. .

Bin Salman has adopted a strategy similar to China’s, hoping to introduce economic reforms but not political reforms that might pose a risk to the continued rule of the Saudi royal family. To implement his Vision 2030 strategy to modernize the Saudi economy, he will need to convince companies to ignore their human rights abuses and other controversies, such as the 2018 murder of Saudi dissident Jamal Khashoggi. Murder by government agents.

Attracting carmakers and their supplier campuses would be a major win. The industry has traditionally played a key role in driving prosperity in developing countries because it sits at the top of the economic pyramid. That’s because it sources parts from nearly every unit it owns, including steel and aluminum for car bodies, chemicals for paint and plastics and, increasingly, high-tech electronics.

Just last month, luxury electric car maker Lucid opened in Monarchy first ever car factory King Abdullah Economic City, near Jeddah, has the capacity to produce 5,000 vehicles per year using so-called semi-knockdown (SKD) kits.

This low value-added work of assembly only is a common risk mitigation strategy in the industry when expanding into new markets. Lucid, however, which counts PIF as its major shareholder, aims to fully produce around 150,000 vehicles by mid-century.

In two years, Ceer Motors may join Lucid, the first Saudi electric car brand and a joint venture between PIF and Taiwanese Apple iPhone contract manufacturer Foxconn.A new national automotive and mobility investment company called Tasaru is launched earlier this monthaiming to further locate suppliers in the country.

Peak demand expected in 2026

But more will be needed to develop Jeddah into a competitive automotive cluster like that of Germany, Japan and parts of the United States. Achieving this goal with two small challenger brands and operating factories facing uncertain prospects is nearly impossible and may not get off the ground without significant government support.

Saudi Arabia needs to reach a critical threshold of scale to become self-sustaining, and winning a trusted partner like an industry veteran will certainly help.

Yazeed Al-Humied, Vice President of PIF, said: “The partnership with Hyundai Motor is another important milestone for PIF (…) it closely integrates with our existing holdings in Lucid and Ceer Motors and expands the Saudi automotive and Moving the breadth of the value chain.” Head of Middle East and North Africa Investments.

Hyundai’s follow-on investment could be the needed evidence that other companies are also willing to invest in the local economy.

One reason is that skilled labor – a key criterion for auto executives when selecting factories – is hard to find in Saudi Arabia, as Riyadh has traditionally relied on importing white-collar workers and rough laborers from abroad. About two-thirds of Saudi Arabian nationals receive a government salary, ensuring some degree of dependence on the royal family’s continued rule.

Saudi Arabia’s royal family faces a broader shift away from fossil fuels that threatens its strategic value to key allies such as the United States.

In a June report, the International Energy Agency forecast the world’s collective demand for oil to be “Slow down almost to a stopIn the next few years, annual demand growth is expected to “shrink” from 2.4 million barrels per day to 400,000 barrels per day in 2028.

The main culprit for this situation is transportation fuel. Growth over the next three years is expected to be the last three years before the rise of electric vehicles kicks off an era of steady decline in crude oil distillates such as gasoline. This may be the reason behind the recent wave of consolidation in the oil industry.

“The shift to a clean energy economy is gathering pace, with global oil demand set to peak by the end of this decade,” said Fatih Birol, executive director of the International Energy Agency. “Oil producers need to pay close attention to the accelerating pace of change. , and adjust its investment decisions to ensure an orderly transition.”

While the wording of the technocratic proposal is innocuous, Birol warned petrodollar countries, which lack democratic legitimacy, that their economies could face massive disruption if they do not diversify. This poses risks to the stability of the repressive regime.

Developing a small but thriving automobile industry would go a long way in insulating the monarchy from civil unrest.