Mounting losses at Sichuan Hyundai Motor Co., a joint venture in China set up by South Korea’s Hyundai Motor Co., has started eating into its capital base, leaving little option for the Korean automaker but to study an exit from the Chinese commercial vehicle market.

Korea’s largest automaker said in an audit report on Monday its Chinese commercial vehicle entity fell into an impaired capital status since the fourth quarter of last year.

Sichuan Hyundai Motor is a 50/50 joint venture established in August 2012 by China’s Sichuan Nanjun Automobile Group Co. and Hyundai Motor to tap into the world’s largest commercial vehicle market, which sells more than 4 million units of trucks, buses and vans a year.

Hyundai Motor entered the market at a time of rapid growth amid China’s construction boom. The joint venture has received a total financing of nearly 1 trillion won ($928.7 million), including a starting capital of 1.9 billion yuan ($296.6 million).

Finding the commercial vehicle market more profitable than the passenger vehicle market, the Korean automaker had expected a steady stream of large-volume deals. It originally set an ambitious goal to sell an annual 170,000 commercial vehicles in China by 2017 and planned to ramp up the capacity of the joint venture’s manufacturing facilities from 160,000 to 300,000 units.

But sandwiched between premium German automakers and affordable Chinese rivals, the Chinese entity managed to sell just 28,786 units last year, with sales in the first four months of this year stopping short at 4,200 units. Its market share currently stands at 1 percent.

Injecting more capital is deemed unreasonable as its partner Nanjun Auto is also facing a cash shortage. Without the capital increase, Hyundai Motor may have to consider withdrawing from the Chinese commercial vehicle market and instead pivot to Southeast Asian countries like Vietnam and Indonesia where competition is less fierce, market analysts warned.

By Lee Seung-hoon and Kim Hyo-jin

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]