Hyundai Motor Company-Beijing Automotive Joint Venture Case Study Topics in Emerging Markets Prof. Mei April 9, 2003 Michael Cheng
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- Solution: Project Valuation
- Inputs: Cash-flows
- Cost of Capital
Our look on Hyundai Motor Co.: Looking closely at the financials of Hyundai Motor Company and its competitors, the analysis proves that Hyundai is well on its way to accumulating global presence through sales. Although Hyundai’s market share in the global economy is relatively very small compared to the United States and European giants, their continued joint ventures and foreign investments will allow them to compete. In fact, Hyundai’s net profit margin is higher than most all of the aforementioned companies. Although the financial crisis has impacted nearly every Asian company, it has only dented Hyundai’s financial standpoint. One can also argue that the crisis was a positive event for the long run of this, and other Asian companies because it forced those companies to rethink how they do business. Solution: Project Valuation: After doing thorough research in both the emerging markets of Korea and China, we have completed a project valuation for Hyundai-Beijing Automotive joint venture. Our valuation is based on many assumptions of Hyundai Motor Corp, Korea and China’s automotive industry, trade agreements, and cost of capital. To implement a strategy that will most efficiently resolve this problem, we have done a thorough investigation of all aspects related to this project. Specifically, we have done valuations (above) on Hyundai Motor Corp, and to get a sense of firm status, we have done a valuation on the project itself and completed a comprehensive automotive analysis in both countries. Inputs: Cash-flows: Since the project is a relatively straightforward case, we made the assumption that Hyundai’s listed invoice/MSRP for their Sonata and Elantra units were global prices. As such, using the US dollar as a currency, we found the cash flows by multiplying the projected production units of each car by the MSRP price from Hyundai. After finding this revenue stream, we calculated the cost of each car by using Hyundai’s historic profit margin per car of 20%. Once the profit per car was calculated, we then split those profits per year by 50% because of the assumption that Beijing Automotive would take their share of profits. Also, it is important to know that Hyundai’s $250 million and $1.1 billion investments in 2005 and 2010, respectively, are Hyundai’s investment share into the project, not the total investment required for the whole project. Cost of Capital: In our previous valuation of Hyundai, we calculated the relative cost of capital for all Hyundai’s future projects of 13.71%. We believe that this is an appropriate discount rate to use in this particular project. Being that Korea and China share many similarities in economic growth, financial markets, and risk, the cost of capital for this venture into China remained at 13.71%. It is also important to assume that we are valuing this project from an American investors’ perspective thus the previous assumptions of the cost of capital still apply. Production: Given the details of the production units per year in 2005 and 2010, we prorated the potential production capacity for each year in between. Starting at 100,000 units by 2003’s year end and the projected 200,000 units by 2005, we found that the growth in each year in between would increase by 50,000 unit increments. From 2005 to 2010, we projected a growth of 60,000 units per year until their goal of 500,000 by 2010’s year end. 
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