The Choice Hyundai Motor Group Must Make to Survive in the Autonomous Driving Race [Weekend Money]

Samsung Securities Stresses the Need for Direct Entry into the Robotics Business

There have been growing opinions in the market that Hyundai Motor Company and Kia should not limit themselves to merely supporting the robotics business but should, like competitors such as Tesla, directly enter the sector themselves.

In her recent report titled "Competitors Are Raising Capital at the Highest Multiples for Growth," Eunyoung Lim, a researcher at Samsung Securities, stated, "If Hyundai Motor Company and Kia do not directly operate in the robotics business, which is attracting major attention in the stock market, they will lose out on cheap financing options and a key means of attracting top talent."

According to Lim, Tesla and Chinese electric vehicle manufacturers are using high valuation multiples as a means to raise capital. She emphasized that the main competitors for Hyundai Motor Company and Kia are no longer traditional automakers, but rather Tesla and Chinese EV manufacturers. Lim warned that because Hyundai Motor Company and Kia have lower valuations, they could be at a disadvantage to their competitors in terms of financing options and talent acquisition.

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She explained that Tesla has created a virtuous cycle encompassing a price-to-earnings (P/E) ratio of 200, successful fundraising, talent attraction, and data accumulation. In 2019, when Tesla turned profitable, it raised 15 billion dollars (approximately 20.7 trillion won) through four rounds of equity financing. Around 20% of its research and development (R&D) expenses come from stock-based compensation, and following the COVID-19 pandemic, Tesla’s rising stock price has contributed to a strong retail investor following. In China, all of the top 10 automakers have entered the robotics business. As part of this expansion, companies such as BYD, Xiaomi, and XPeng have raised capital through equity issuance at P/E ratios between 20 and 80.

Lim stressed that, in the era of artificial intelligence (AI), investment through high-multiple stocks is advantageous for companies. She noted, "AI requires physical assets such as data centers for computation, and mass deployment of physical devices like electric vehicles and robots is necessary to collect quality data." She added, "The development of AI technology entails significant capital expenditures, making large-scale fundraising essential for companies. In a time when investment outpaces savings, high interest rates are to be expected." Lim further explained, "Winners in this era will be those companies that can raise capital most cheaply, at the greatest scale, and for the longest duration. Such companies will also build technological moats, and in today's market, the cheapest capital is not bonds but high-multiple stocks."

She concluded that it would be more detrimental than beneficial for Hyundai Motor Company and Kia to remain only in a supporting role for the robotics business. Given their business is concentrated in automobiles, their valuations are likely to remain low, and this could eliminate their options for raising capital, attracting talent, and building a strong investor following. Lim also pointed out that as Hyundai Motor Company and Kia, both shareholders in Boston Dynamics, see their fundraising capacity diminish, it could have a negative impact on the valuation of Boston Dynamics itself. Furthermore, the lack of a strong retail investor base could drive up the costs of accumulating autonomous driving data.

This content was produced with the assistance of AI translation services.