This article is by Sarah Chea and read by an artificial voice.
[EXPLAINER]
Hyundai Motor Group has effectively been roped into a Korean bid for a 60 trillion won ($42 billion) Canadian naval submarine project at a time when the automaker is already burdened by a string of massive, ongoing investments in the United States.
Ottawa's addition of offset obligations — a trade element under which a winning bidder is expected to offer industrial benefits — in search of an auto factory is, by most accounts, unrealistic for Hyundai given the company's current capacity constraints and financial commitments, reaching into the billions of dollars.
Euisun Chung, Hyundai Motor Group chair, recently joined a Korean delegation to Canada in support of Seoul's bid to win a submarine contract, while on the very same day, U.S. President Donald Trump hiked tariffs on Korean cars from 15 percent to 25 percent, a move expected to cost Hyundai at least 4 trillion won annually in additional expenses.
What, exactly, is at stake?
Korea is competing as a bidder in Canada's project to replace its aging Victoria-class submarines, proposing the delivery of up to 12 diesel-powered, 3,000-ton submarines. As part of the bid's industrial offset requirements, the Canadian government has pushed Hyundai to set up an automobile manufacturing plant in the country.
While contributions from Korea's shipbuilders Hanwha Ocean and HD Hyundai were expected, Germany's aggressive participation intensified the competition, effectively forcing Hyundai into the process unexpectedly. As a strategic, state-level initiative, Hyundai is also under pressure by Seoul to assist, seeing the automaker as a winning bargaining chip to secure the contract.
Car manufacturing remains one of the most effective engines of job creation and domestic parts production, a fact not lost on politicians. It is also why Trump has long treated auto plants as geopolitical trophies.
Canada extended a similar demand to Germany, currently the most formidable rival to Korea in the procurement process, and the European country has already moved aggressively. Backed by Volkswagen and Mercedes-Benz, Berlin has proposed — and begun executing — a vertically integrated supply chain in Canada spanning mining, batteries and finished vehicles. PowerCo, a Volkswagen Group subsidiary, broke ground in June on a $7 billion EV battery plant in Ontario, the largest single investment in Canadian history.
Why can't Hyundai afford a factory in Canada?
From Hyundai's perspective, the economics are unforgiving.
Hyundai and Kia sold roughly 260,000 cars in Canada last year, translating into a market share of just 13.7 percent — hardly enough to justify a large-scale production facility.
Canada is the eighth-largest market for Hyundai in terms of sales, while the United States remains its top-selling market, claiming more than half of all sales for the automaker.
Any Canadian plant would inevitably rely on exports to the United States or Mexico, yet trade relations between Washington and Ottawa have grown increasingly volatile.
Currently, Canadian-made vehicles exported to the United States are subject to a 25 percent tariff. Furthermore, the Trump administration recently warned that if Canada proceeds with new export agreements involving China, U.S. tariffs on Canadian imports could soar to 100 percent.
In 1989, Hyundai opened a plant in Quebec with an annual capacity of 100,000 vehicles, but closed it down only four years later amid weak U.S. sales and parts supply issues that led to low productivity.
"Building a new plant in Canada is effectively an impossible option for Hyundai, considering slowing EV demand and an ongoing tariff tussle between Canada and the United States," said Kim Pil-soo, a professor of automotive engineering at Daelim University College. "Canada is using this as leverage — an excuse to gain an auto plant and revive its manufacturing base."
Instead, Hyundai is expected to limit its contribution to ...