As the war sparked by U.S. and Israeli airstrikes on Iran shows signs of spreading across the Middle East, Korea's local strategies in the auto industry are increasingly likely to face setbacks. KG Mobility and Hyundai Motor are building plants in Saudi Arabia, but growing concerns about delayed operations have them closely monitoring the situation. The risk that a global logistics crunch could make it harder to procure parts is also a problem.
According to the industry on the 7th, KGM recently began licensing procedures and various tests to launch a semi-knockdown plant in the Jubail Industrial City in eastern Saudi Arabia with Saudi National Automobiles (SNAM), a Saudi state-owned auto company.
A semi-knockdown plant exports vehicles in modules or parts for local assembly. Because it does not require installing new production lines, it carries a lighter fixed-cost burden and can ramp up quickly, while also being relatively free from tariff and other burdens.
If the schedule holds, full-scale production should begin in June, but that is no longer assured as the war between the United States and Israel and Iran shows signs of escalating into a Middle East war. As Iran unleashes missile and drone attacks on neighboring countries such as Saudi Arabia and the United Arab Emirates (UAE), there are projections that Saudi Arabia could also respond.
A KGM official said, "There are no major problems yet, but if the war drags on, progress could be delayed, so we are watching closely."
KGM set this year's sales target at 137,290 units, up 24% from last year. The Saudi plant has an annual production capacity of 30,000 units. The plant needs to be running from June for the company to meet its sales target.
In addition, KGM has been focusing on developing the Middle East and Africa markets, including establishing a Dubai, UAE, office in September last year. The Saudi plant, which will produce the Rexton and Musso, will be the centerpiece of this strategy.
Hyundai Motor's Saudi strategy is also within the impact zone. In May last year, Hyundai Motor established a joint production venture, HMMME, with the Public Investment Fund (PIF). The venture is building the first Middle East production base, with an annual capacity of 50,000 units, in the King Salman Auto Industry City in western Saudi Arabia. It is also a semi-knockdown plant, with operations targeted for the fourth quarter of this year.
Hyundai Motor plans to prioritize selling vehicles produced in Saudi Arabia for the domestic market and later export them to the Middle East and Africa. The company currently ranks second in market share in Saudi Arabia after Toyota, and it plans to leverage its localization strategy not only to catch up with Toyota but also to sustain growth across the Middle East.
However, if plant operations are disrupted, this strategy will inevitably be delayed. A Hyundai Motor official said, "There are no problems so far," but added, "If the war drags on, the impact will be unavoidable."
Even if KGM and Hyundai Motor complete their plants on schedule, there are projections that operations may not run smoothly. Because semi-knockdown plants require shipping large volumes of parts to the site, growing concerns about logistics bottlenecks due to the war are weighing on the outlook.
A logistics industry official said, "For exports to the Middle East, there are workarounds such as entering via nearby ports instead of the currently blockaded Strait of Hormuz and then transporting the cargo overland to the destination," but added, "In that case, time and expense will increase, and rising oil prices could also push up ocean freight rates."