Consumer Discretionary / Industrials

Henry Kwon

Equity Bottom-Up

<p>Hyundai's recent announcement for opening the Hyundai-Kia's first "Open Innovation Center" overseas in Israel passed without much fanfare in the stock market, and understandably so since the event will have absolutely no impact on this year's, or even next year's earnings.  However, the event marks a very important clue that long term investors should have as a window into Hyundai-Kia's strategic thinking about the business and where the executive offices think the Group should go. </p><p>Automotive OEMs have become very active PE firms that search for and acquire high tech startups with strategically relevant technology IP.  GM's acquisition of Cruise Automation in 2016 and Ford's investment in Argo AI are just two examples of how global OEMs beef up R&amp;D, and Hyundai-Kia is no exception.  Relatively few people know that Israel is a global hub for disruptive innovation especially in cyber security, AI and autonomous driving technologies but it is.  In fact Hyundai is not the only OEM to be setting up such a technology hub in Tel Aviv, but Volkswagen is another big name in the global auto industry bent on engaging in similar activities there.</p><table class="table table-striped"><tbody><tr><td colspan="2" style="text-align: center;"><h2>Hyundai's Israeli Connection</h2></td></tr><tr><td><strong>Timeline</strong></td><td style="text-align: right;"><strong>Event</strong></td></tr><tr><td>February, 2017</td><td style="text-align: right;">Strategy &amp; Technology Division established</td></tr><tr><td>September, 2017</td><td style="text-align: right;">Hyundai-Kia, Technion and KAIST Partnership (HTK Consortium)</td></tr><tr><td>November, 2017</td><td style="text-align: right;">Announcement to establish "Open Innovation Center" in 2018</td></tr></tbody></table><div class="content-caption">Company Data</div><div class="content-highlight"><p>Should investors be concerned that global automotive OEMs are becoming PE firms?  In many ways this is a reflection of disruptive innovation at work.  Electrification and Autonomous driving represent unfamiliar terrain for automotive OEMs that for the past century guarded powertrain know-how as the most important trade secret.  Now, as vehicles electrify and go driverless, suppliers are quickly becoming IP holders so in a sense OEMs are vertically integrating by going the private equity route.  While risks of failure will be abundant the chance of a hit can bring enormous returns.  At this point, if I were invested in auto stocks, I would rather have OEMs invest my money on startup incubation in relevant technologies than to receive them as year-end dividends, unless my investment horizon is through December 31.</p></div>

Hyundai's recent announcement for opening the Hyundai-Kia's first "Open Innovation Center" overseas in Israel passed without much fanfare in the stock market, and understandably so since the event will have absolutely no impact on this year's, or even next year's earnings.  However, the event marks a very important clue that long term investors should have as a window into Hyundai-Kia's strategic thinking about the business and where the executive offices think the Group should go. Automotive OEMs have become very active PE firms that search for and acquire high tech startups with strategically relevant technology IP.  GM's acquisition of Cruise Automation in 2016 and Ford's investment in Argo AI are just two examples of how global OEMs beef up R&amp;D, and Hyundai-Kia is no exception.  Relatively few people know that Israel is a global hub for disruptive innovation especially in cyber security, AI and autonomous driving technologies but it is.  In fact Hyundai is not the only OEM to be setting up such a technology hub in Tel Aviv, but Volkswagen is another big name in the global auto industry bent on engaging in similar activities there.Hyundai's Israeli ConnectionTimelineEventFebruary, 2017Strategy &amp; Technology Division establishedSeptember, 2017Hyundai-Kia, Technion and KAIST Partnership (HTK Consortium)November, 2017Announcement to establish "Open Innovation Center" in 2018Company DataShould investors be concerned that global automotive OEMs are becoming PE firms?  In many ways this is a reflection of disruptive innovation at work.  Electrification and Autonomous driving represent unfamiliar terrain for automotive OEMs that for the past century guarded powertrain know-how as the most important trade secret.  Now, as vehicles electrify and go driverless, suppliers are quickly becoming IP holders so in a sense OEMs are vertically integrating by going the private equity route.  While risks of failure will be abundant the chance of a hit can bring enormous returns.  At this point, if I were invested in auto stocks, I would rather have OEMs invest my money on startup incubation in relevant technologies than to receive them as year-end dividends, unless my investment horizon is through December 31.

Hyundai Motor

Hyundai Motor: Private Equity in Israel