(SEOUL) January 14, 2020 – Kia Motors Corporation has announced today details of ‘Plan S’, its mid- to long-term strategy aimed at progressively establishing a leadership position in the future automotive industry, encompassing mobility services and vehicle electrification, connectivity and autonomy.
Plan S outlines Kia’s preemptive and enterprising ‘shift’ from a business system focused on internal combustion engines toward one centered on electric vehicles and customized mobility solutions. This two-track strategy is designed to facilitate Kia’s brand innovation and enhance profitability.
Alongside Kia’s 2025 financial and investment strategy, details of Plan S were announced to shareholders, analysts and credit-rating agencies at the company’s CEO Investor Day in Seoul today.
By the end of 2025, Kia plans to offer a full line-up of 11 battery electric vehicles. With these models Kia is looking to achieve a 6.6% share of the global EV market while also attaining a 25% share of its sales for its eco-friendly cars. With the global EV market expected to gain strength by 2026, Kia is aiming for 500,000 annual EV sales and global sales of 1 million eco-friendly vehicles (excluding China).
Alongside these objectives, Kia will offer EV-based mobility services as part of its new business model, helping solve global urban problems such as environmental pollution. In the Purpose Built Vehicle (PBV) market, anticipated to grow on the back of expanding car-sharing and e-commerce businesses, the company will secure leading-edge competitiveness.
‘Plan S’: Kia’s second-generation future businesses
Preemptive transition to EVs
Provision of customized mobility solutions
Plan S will see Kia Motors invest a total of 29 trillion won (US $25 billion) by the end of 2025 to establish leadership in vehicle electrification and diversify its business. By the end of this period, Kia Motors is targeting a 6% operating profit margin and 10.6% return on equity (ROE) ratio to secure the necessary capital and maximize shareholder value.
“As the auto industry undergoes turbulent changes, today is also an opportune time for Kia Motors to radically transform itself into a global enterprise dedicated to spearheading customer value-led innovations,” said Kia Motors President and CEO Han-woo Park. “Kia Motors will actively innovate to take on the challenges ahead, identifying and capitalizing on new opportunities to propel the company forward.”
CEO Park added: “Plan S is a bold and enterprising roadmap for Kia’s future business transition, buttressed by the two pillars of electric vehicles and mobility solutions. Our approach is to put customers first, and Kia will reinvigorate its brand innovation by developing products and services that offer new experiences for customers.”
As the two strategic objectives of Plan S, Kia will concentrate on (1) leading the popularization of electric vehicles, and (2) expanding mobility services for electric and autonomous vehicles, as well as entering the PBV business.
The company will pursue innovations across the board, encompassing brand identity, corporate identity, design identity and user experience, among other fields. Kia aims to enable customers to directly experience, feel and understand the company’s evolution as an enterprise championing EVs and mobility solutions.
Kia’s new brand system, which is slated to be revealed in October, is currently being formulated under clear objectives. This includes becoming a pioneer in the age of EVs, a brand beloved by the millennial generation (those with a good grasp of information technology born between the early 1980s and early 2000s, a period witnessing the transition from the analog to the digital era) and Z generation (those born after the mid-1990s and grown up largely in a digital environment with a natural inclination for using digital tools, hence their nickname, ‘digital natives’), and a symbol of challenge and innovation.
At the same time, the company plans to maximize shareholder value and win more trust from the market by steadily strengthening its competitiveness through innovations in existing businesses, as well as by increasing profitability of future businesses.
Preemptive transition to EV business
Kia will focus on securing its leadership in the global EV market by adopting a strategy of product differentiation, such as launching a dedicated EV model, as well as by establishing a company-wide innovation system.
Kia plans to lay the ground for its great leap forward by transitioning to an EV-based business system ahead of competitors, leveraging its production capabilities in manufacturing internal combustion engine vehicles.
By prioritizing future customer value, the company also plans to develop and release innovative EV models, offering a differentiated product appeal, such as an EV-specialized design, user experience and quality. Starting with the launch of its maiden dedicated EV model in 2021, Kia will establish a full EV line-up of 11 models by 2025, adding new EV models to its whole line-up along the way, including passenger vehicles, SUVs and MPVs from 2022.
The dedicated EV model to be launched 2021 will be built on a unique platform specifically engineered to accommodate the car’s world-leading EV powertrain and technologies. Among other features, it will offer a crossover design which blurs the boundaries between passenger and sport utility vehicles, a future-oriented user experience, a single-charge driving range of over 500 kilometers, and sub-20-minute high-speed charging time.
Across its EV line-up, Kia will offer diverse options by simultaneously offering EV derivatives of existing models and dedicated EV models, with differentiated, customer-focused product features, such as dual charging capabilities (400V/800V).
Growth in global EV sales will be pursued in accordance with a customized, market-oriented strategy, which considers regional differences in environmental regulation, subsidies, infrastructure and more.
In Korea, North American, Europe, and other advanced markets which face stricter fuel-efficiency standards, the company will foster their development as its key EV market bases. A full EV line-up will be established in these markets by 2025, and the sales of EVs will account for about 20% of Kia’s total sales.
In emerging markets, Kia will focus on expanding sales of internal combustion engine vehicles, while reviewing the selective entry of EVs depending on demand in each market.
By adopting an innovative EV architecture (basic vehicle framework) development system, the company will establish a structure of planning, development and production, capable of maximizing customer value by effectively incorporating market demands right from the early product planning stage.
Through these process innovations, which enable the cost- and time-efficient development of a diverse range of EV models, Kia expects to bolster its EV competitiveness.
Kia also seeks innovations in sales methods. Through the integrated management of the EV lifecycle, the company is reviewing the feasibility of businesses such as a tailored subscription model, a battery rental/lease program, and used battery-related businesses.
Kia’s efforts to foster an EV ecosystem via the establishment of a resource-circulating system fall under the same context. This includes the creation of infrastructure to recycle used EV batteries into energy storage systems (ESS), as well as the acquisition of related technologies.
Over the last year, Kia has unveiled three concept cars that offer a glimpse of the company’s direction for future EV development, such as the Imagine by Kia, the HabaNiro and the Futuron. At the same time, the company has advanced all-around strategic investments and collaboration in the form of open innovation for internalizing technologies and constructing infrastructures.
Significantly, in May last year, Kia invested in Croatian performance EV manufacturer Rimac Automobili; and in September invested in IONITY, which specializes in building high-speed charging infrastructures. The IONITY investment in particular will pave the way for advancing Kia’s business of high-speed recharging infrastructure development in Europe and other major countries.
Promoting mobility services; entry into PBV business
Kia will diversify its business to offer eco-friendly mobility services centered on electric and autonomous driving across major global cities. It will also enter the Purpose Built Vehicle (PBV) market, where demand is expected to grow amid the proliferation of e-commerce and car sharing, eventually securing a new corporate client base there.
In key global cities that are actively responding to climate change and supporting EV popularization, Kia will collaborate with local partners to establish Mobility Hubs that house EV charging stations, vehicle maintenance centers and various convenience facilities.
These Mobility Hubs will be utilized as transfer stations between electric vehicles and internal combustion engine vehicles, the latter of which cannot enter certain urban areas due to environmental regulations. Using various infrastructures such as charging stations and convenience facilities inside the Mobility Hubs, Kia will explore new business models including small-scale logistics and vehicle maintenance.
In the long term, the company aims to operate self-driving robotaxis and on-demand roboshuttles in urban centers that also operate the Mobility Hubs.
Kia has recently ramped up collaboration with mobility solutions businesses both at home and abroad. In 2018, the company invested in Grab, Southeast Asia’s largest ride-hailing service, food delivery and payment solutions company; and in Ola in March last year, an Indian Ridesharing company offering Peer-to-peer ridesharing, ride-service hailing, Taxi, Food delivery and other mobility services.
In particular, Kia has established and started operating a car-sharing services joint venture with Repsol, Spain’s major energy corporation, in Madrid via its WiBLE brand. Launched in September 2018, WiBLE operates 500 Kia Niro Plug-in Hybrid EVs (PHEVs) through a free-floating method that allows users to freely rent and return vehicles within the service area. WiBLE remains one of Europe’s most successful shared mobility schemes, with over 130,000 members having registered since its inauguration.
Kia – as part of Hyundai Motor Group – signed a joint venture agreement in September 2019 with Aptiv, a world-leading enterprise specializing in the development of autonomous driving solutions. This partnership will help the brand advance its Society of Automotive Engineers International Level 4 and Level 5 autonomous driving technologies that will constitute the core capabilities of future mobility solutions.
Through the joint venture, Kia will develop a leading-edge autonomous driving platform by 2022, and run experimental operations in select areas in 2023. It will be followed by commercial production in the second half of 2024, and supply the platform to global automakers and mobility services firms.
Kia is looking beyond simply repurposing the use of vehicles sold to individual customers. The company is turning its attention to the growth potential of the PBV market that serves corporate and other customers.
Demand from corporate customers in transport, logistics and distribution businesses is expected to grow significantly over the next decade. Currently accounting for just 5% of the global auto industrial demand, the sector is projected to grow to 25% by 2030 on the back of growth in e-commerce and ride-sharing.
First of all, Kia will concentrate its efforts on enhancing and elevating PBV products to lead market coverage by securing core clients.
The company will go through a transition period of operating a separate trim for existing vehicles such as the Niro EV and Soul EV. It will then develop and supply target client oriented PBVs, such as car-sharing vehicles, low-floor logistics vehicles for onboarding and offboarding, and even delivery trucks equipped with cooling and refrigeration equipment for fresh deliveries.
With the popularization of autonomous technology, Kia will expand its business model to include a customized PBV business centered on electric and self-driving vehicles that use an integrated modular ‘skateboard’ platform, such as mini-size driverless delivery cars and robotaxis.
The skateboard platform incorporates a flat, low-mounted battery and compact motor, two of the core EV components, atop a skateboard-shaped platform. Such a structure allows a car body to be mounted on top depending on users’ functional needs.
For those PBVs used for special purposes, securing cost competitiveness is of paramount concern. Therefore Kia will actively collaborate with outside players and use its own internal specialization networks to establish a specialized development team and production system.
Financial and Investment Strategy
At its CEO Investor Day in Seoul, Kia also revealed its mid- to long-term financial and investment strategy, including a plan to increase profitability through its successful transition to a future business system, as well as establish a shareholder return policy aimed at restoring the market’s trust.
Kia plans to invest a total of 29 trillion won by the end of 2025; reach a 6% operating profit margin; and achieve a 10.6% return on equity ratio.
Investment capital will be secured by improving profitability of current internal combustion engine-based businesses, and the company will concentrate investment in electric and autonomous vehicles to cement its global leadership in future businesses.
Its future business investment, centered on bolstering Kia’s technological capability and exploration of new businesses, will be carried out via open innovation that creates diverse synergies with external players.
Over the next two to three years, a period during which Kia will continue to release new volume models such as the Sorento and Sportage, the company will harness all efforts to enhance its profitability via improvements to its sales mix. The sales ratio of SUVs, which currently stands at 50% of all models, is expected to rise to 60% by 2022, excluding the China market.
Having successfully landed in India, Kia’s penetration of the world’s fourth-largest auto market will continue. Following last year’s successful inauguration of the Kia Motors India plant in Andhra Pradesh state and the introduction of the Seltos SUV, Kia intends to continue its growth trajectory by adding a new RV-oriented line-up. This will enable the factory to meet its production capacity of 300,000 units per year by 2022.
In China, Kia’s mid- to long-term aim is to strengthen its fundamental competitiveness to create a virtuous cycle of brand innovation via enhanced production and sales. This includes increasing the efficiency of line-ups, operating regional strategic models, and enhancing dealer competitiveness to raise profitability.
At the same time, Kia’s Complete Knock Down (CKD) business, prevalent in emerging markets across Asia-Pacific, the Middle East and Africa, Russia, and Central and South America, will be augmented to 300,000 units by the end of 2023, from 80,000 units today.
Increasing sales volumes in emerging markets is also a main factor in profitability enhancement. With rationalized model lines, reduced development costs, optimized specifications and other improvements, sales volumes of internal combustion engine vehicles in emerging markets will grow to 1.05 million units through 2025, from 770,000 units today (excluding China).
2025 Financial and Investment Strategy
Shareholder value maximization
Of particular importance, Kia will further innovate its basic cost structure via the adoption of an EV architecture development system to consolidate its EV leadership. It is centered on the optimization of design, innovation and standardization, leading to reduced material costs, increased sharing of components from ICE vehicles, new technological developments, and introducing new specifications. By 2025, it is forecast that securing profitability from EVs on par with ICE vehicles will be possible.
To enhance the trust of shareholders and the market, Kia will actively implement a shareholder return policy. In the short term, the company will maintain its dividend payout ratio of 25-30%. In the medium- to longer-term period, it will review share buybacks and increase its payout ratio based on enhanced liquidity.
In addition, to encourage the long-term growth of shareholder value, Kia will raise its return on equity ratio to the globally competitive 10% range, achieving 10.6% by 2025.