Hyundai Jumps Back Into Japan With an Online-Only, All-Electric Plan

(Bloomberg) -- The last time Hyundai Motor Co. sold a car in Japan was in 2009, when it pulled out after years of dismal sales. Now, South Korea’s top automaker is back, but with a twist: it’s only going to sell electric vehicles, and only online.

“We have prepared a lot, not to repeat the same mistake,” Jaehoon Chang, Hyundai’s chief executive officer, said in an interview. “We should know customers, we should know the market, with the right product and the right brand.”

Chang, 57, is counting on the push back into Japan — to be formally unveiled in Tokyo next week — to reach his goal of selling 1.7 million EVs globally in 2026, including the carmaker’s Kia and Genesis brands, a target that was recently increased from 1 million. For incumbents and new entrants, the twin forces of electrification and automation are fueling bolder moves into fresh markets that, up until now, might have seemed impenetrable.

While Hyundai hasn’t disclosed how many EVs it aims to sell in Japan, it’s definitely more than the 15,000 gasoline-engine cars sold during its prior foray. “We’ve experienced huge growth on the EV side in Korea, and we’re expecting the same thing will happen even faster in Japan,” Chang said.

Leading Hyundai’s charge back into Japan’s hyper-competitive automobile market is the Ioniq 5, a compact sports utility vehicle that debuted last year to wide acclaim. The vehicle will go head-to-head against two other battery-based EVs being rolled out this year from Japan’s top two automakers: Toyota Motor Corp.’s bZ4X and Nissan Motor Co.’s Ariya.

Even though EV uptake in Japan remains miniscule, with the bulk of the 8,600-plus registrations last year comprised of imported Tesla Inc. models, there are signs the archipelago might be on the cusp of catching up with the U.S., Europe and China.

One out of every four potential car buyers is considering an EV, a recent survey showed, while charging points are popping up around the country, even in new condominium projects.

As far as Hyundai’s CEO is concerned, the starting line is the same for every carmaker when it comes to EVs in Japan, where 4.5 million vehicles were sold last year. That gives Hyundai a chance to redefine itself as an EV manufacturer under the Ioniq marque, said Chang, who has first-hand knowledge of the market, having lived in Japan twice in the past.

If the strategy sounds familiar, that’s because Samsung Electronics Co. used a similar tactic to win over Japanese consumers with its Galaxy smartphone. During the years when Hyundai was absent, Samsung and LG Electronics Inc. proved that it’s possible for South Korean companies to break into, and even thrive, in the notoriously fickle market.

“We know this market is very sophisticated and the Japanese customer, they have higher standards for everything because they know cars,” Chang said. “What I learned from Samsung and LG is that it's about the brand and the product strategy.”

Even so, tensions between the countries — rooted in Japan’s colonial rule over the Korean Peninsula — can flare up from time to time. Japan imposed a curb on exports of key materials needed for memory chips in 2019 during a diplomatic row. The following year, Japanese automakers saw their sales plummet in South Korea. This week saw a feud over a 400-year-old gold mine.

Still, in a country where EVs haven’t managed to reach a market share of even 1%, it’s difficult to gauge whether Japanese consumers will embrace the Ioniq 5, with its retro-futuristic design. Although it’s a compact SUV, the vehicle isn’t exactly small — a challenge for the country’s narrow roads and tight parking spots, one of the reasons cited for Hyundai’s gasoline-engine cars failing to gain traction more than a decade ago.

Moreover, Japan’s EV uptake is projected to lag behind the U.S. and Europe through 2025, with BloombergNEF predicting that plug-in hybrids and battery-based EV sales will reach 200,000 units, or just about 5% of the market.

Despite Samsung and LG’s successes, the country’s consumers might still be reluctant to buy an EV — a far more expensive purchase — from a South Korean automaker because of their preference for Japanese cars, according to Kim Jin-Woo, an analyst at Korea Investment & Securities Co. in Seoul.

“I don't understand why Hyundai needs to sell EVs in Japan for now, because the demand from Europe and America for EVs is so high,” Kim said.

Pricing will be key. While Hyundai hasn’t disclosed how much the Ioniq 5 will cost in Japan, a comparable price to the U.S. sticker of $45,000 to $55,000 could make it competitive compared with the Ariya EV, which Nissan will sell for 5.4 million yen to 7.4 million yen ($47,000 to $65,000). Toyota hasn’t indicated a price for the bz4X.

While the Ioniq 5’s styling blends in well amidst domestic cars and European imports on the streets of Tokyo and Yokohama, the biggest challenge for the car and every other EV on the road is the lack of quick charging points. The Ioniq 5 has garnered several awards since its debut, including “German Car of the Year” for 2022.

The other big question looming over Hyundai’s move back into Japan is the decision to sell cars online. The nation’s auto dealers have been a formidable part of the domestic sales network, with car buyers accustomed to top-notch service.

“We have no legacy dealers, which means we can try something new,” Chang said. He’s betting that Japanese customers have gotten more used to shopping online due to the pandemic. Tesla has also paved the way with its online-only sales model, although Toyota and Nissan have also started to offer web-based subscription-style leasing programs.

In addition to letting car buyers customize and order their vehicles online, Hyundai also plans to offer web-based payment, insurance and registration.

There’s another twist in Hyundai’s re-entry: the automaker will also sell its Nexo fuel-cell vehicles, which have been available on a trial basis. Due in part to Toyota’s efforts to popularize the technology with its Mirai FCV, there’s already a network of 157 hydrogen fuel stations across the country. Both automakers share the same, somewhat quixotic, aspiration that fuel cells will play a role in the future of transport.

To market the Ioniq 5 and Nexo, Hyundai is teaming up Anyca, a Japanese car-sharing provider that connects vehicle owners and prospective renters. The automaker hasn’t said whether or when it plans to roll out additional Ioniq models, which include a sedan and a larger SUV.

Hyundai is building out a service center in Yokohama, the port city next to Tokyo, where potential buyers will be able to visit and test-drive cars. The facility, the first of several planned across the nation, will also handle after-market maintenance, as well make service calls to customers’ locations after the first Ioniq 5 deliveries begin from the middle of the year.

The lack of a dealer network suggests Hyundai will proceed cautiously for now, being careful not to commit too much money on the ground in a challenging market. For a proud South Korean automaker, however, it’s still a risky bet to put its reputation on the line for a second time.

“Sometimes, you need to make a bold move,” Chang said.

©2022 Bloomberg L.P.