Transcription
Hi, everyone, and good morning. So Eric made it very clear there's a QR code, so I'm expecting a lot of questions because, you know, there's this untold rule that you want to have the more questions for the panels of the day. So please, please ask a lot of questions. Gentlemen, thank you so much for joining us. We have 40 minutes to talk about the great realignment, crossroads of air fragmentation, but of course, economic uncertainty. So, as we all know, number one worry over the last five years because of that poll, certainly for people here in the room, and it's cutting costs of expertise and boosting productivity. It's also shaping up labor markets and raising the risk of market bubbles. The world seems to be splitting into rival blocs and fragile supply chains, making resilience and security the new drivers of investment opportunity. So let's get straight to it. Jose Munoz, let's let's start with you. So how are you seeing this reordering of world power with the auto industry, where China has been on this incredible ascendance and the rest of the world is also struggling, frankly, to keep up with the ever-shifting whims of the White House?
Well, it's a huge challenge, right? But and part of the culture of our company is, since our founder, Chung Ju-yung, is to really take every change as a great opportunity, right? And then indeed, that's what we're trying to to do. But it's changing completely the environment because particularly the tariffs, the change in regulation, the wars are making the big OEMs and us, in particular, to make really big, big changes. But one of the key conclusions for us was, okay, we are not looking at things in the short term, we're looking at things in the mid to long term. And then we still believe electrification is here to stay and is going to continue to grow. And therefore, we are maintaining our investments and we're doubling down in markets like the United States where we have announced investments of $26 billion and as soon as two days ago, and I would say also 125 trillion Korean won is about $86 billion of investment the next five years in Korea as well, to be more localized, to be able to navigate in this difficult situation. So again, not short term, mid to long term is the solution. And I think the market is giving us some a good hopes that this is the right way to go. And I want to talk about supply chains in just a second because that feels like a nightmare trying to reroute some of that. But Georges, you're head of HSBC. When you look at, you know, how difficult it is for such a global bank to adjust a global strategy. Exactly. At a point where the world is increasingly divided by geopolitical blocks.
Thank you for your time. The first thing is the world is reconfiguring, globalization is reconfiguring, and we are basically following that trend. We're supporting our customers follow that trend. What's important here is to realize that there's been major shifts. So ten years ago, you could summarize global trade by saying China manufactures, the US consumer buys, and that's global trade. Subsequently, China has been manufacturing for the world. What we're seeing more recently is Asia buys Asia. We're seeing China manufacture in the world as opposed to for the world. This is a base, a trend. This is supported a lot into Asia, the wider Asia, Asia, Middle East supported a lot of trade within this region. It's supported a lot of foreign direct investment in this region. It's supported a lot of employment in this region. And the way we look at it is with more integration within this wider region, we will add 1.8% to GDP across the region. Now, the US tariffs will obviously hurt, but the estimate we have is that they won't hurt around 0.5% GDP. So therefore, net net, this region can benefit from greater integration. Within that, you know, we are for trade and for FDI. And, you know, Francine, these reconfigurations have been happening throughout our history. We've been born 160 years ago here in Asia. We've been 148 years in Singapore. So on to say how do we help our customers? Muscle memory. Muscle memory is always a good idea.
Chuck Kat, how do you see actually the economy changing? What's driving it? Is it geopolitics? Is it AI? Is it everything in between, or is it actually just labor dynamics? Right.
Well, it's everything, right? I mean, to be sure, these changes, I would say, have been accumulating for at least the last 5 to 10 years. The way we looked at it is that we looked at changes sort of at three levels, right? The first is cyclical. Those are the stuff that we have been dealing with, right, with business cycles. The second is what we would call structural things, which you could kind of predict, for example, demographics. And then finally, in the last few years, what we are seeing is what we call foundational, right? I mean, the top three forces for foundational changes, i.e., geopolitics and climate change. So if you take those three, for example, and then you think about the implications. There are a couple. Fragmentation is one of them. And that has great implication in terms of, you know, how you should allocate capital. It also has implication in terms of the macro, right? Net net, the cost of doing business is going higher and the costs of defense and other things probably cause a bit of inflation pressure. Those on the macro front, I think for businesses, there's also implication of incumbency versus startup, right, especially with technology coming. So we are looking at that very, very closely as an investor, but also thinking about in a how managers, operators can add value, right? So incumbency to take that as an example has great advantages, especially in an age where you have data, you have customers already. Those are big advantages. Question is, can an incumbent adapt quickly? Right. And that, you know, could decide whether you end up a winner or losers. But generally, because the span is so big, right, as this war goes through all this adjustment, we do see, you know, kind of a what people might call a k-shaped divergence. The big looks like will get bigger, right? The tech, you know, will have an advantage over the non-tech. So I think that's another kind of trend that, you know, capital allocator. You know, we want to sort of make sure that we put money on the right side. That's, again, always a good idea to put money on the right side.
How do you see this fragmentation? Do you have to choose between being either an ally of China or the U.S.?
So the business we are in is a renewable energy. We believe this is more a foundational layer for different global like localization. So, you know, I always believing they know the current geopolitical tensions is coming from net zero zero-sum game. But technology innovation is the way to improve productivity. To break through the zero-sum game, to actually is to make the pie bigger rather than dividing the pie. So that's why energy technology is most important. People start to realize now with AI development, the foundation is about energy. Again. So renewable energy even more fundamental because we are going to build a foundation around unlimited, infinite renewable energy, which is supposed to be free. So, you know, nowadays the technology we are operating just make me kind of think about like before industrialization. Every country, some country has some coal, some countries have not. People are winning by steaming, using steam engines to build that industrial foundation for developing textile and industrial whatever. So the renewable technologies. Today, the wind turbine is like the steam engine back 200 years ago. So every country has the wind, solar power, solar bring wind turbines, solar panel, energy storage. You create a modern energy system. A paddle. Then you can build your modem, localized manufacturing supply chain. So that's what I see is still a common ground on the foundational level. I mean, the difference, I guess, with the steam engine period is this overlay of geopolitics. Is it difficult to navigate? I think, you know, as I said, is that if you actually get away from a zero-sum game. So if you always think that the inclusive development collaboration, there's still huge rooms to be collaborative and have that.
Give me a sense of what this tumult means actually, Fondé, on your supply chains. So how much have they changed and how much does it change the idea of a great realignment? Is that at some point you reach the end point where it's it's fixed? Is that how we should see it, or is it ever evolving?
It's ever evolving. So this is a fundamental shift, right? So we are an international Korean company, A, and then a lot of the production takes place in Korea. And then because we are vertically integrated, we own our own suppliers like lobbies, lobbies and others. And then it means that if you want to succeed in the new environment, for example, you cannot afford paying 25% tariffs or 15% tariffs and being competitive in the market. So you need to completely change that. How do you do that? You need to change your supply chain. You need to invest in the in the local markets, but you need to improve fundamentally in your operation. So, for example, you need to have better quality and you have to have more high productivity, a lower cost. How do you do that? We utilize Asia, we utilize robotics, the Boston Dynamics. So we bring the latest and greatest technology to our plants. I'm very proud to say that we are the only OEM producing here in Singapore. There are the only five in the state-of-the-art factory. It's almost an autonomous factory. So people are talking about autonomous driving. We are doing already the autonomous factory. And then the only thing that is not autonomous is the management, right? So we need to have executives to manage the situation to make the most out of it. But fundamentally, manufacturing becomes way more important because you cannot just rely on the old way of producing vehicles increasing your cost. You cannot just pass the cost into the customer because otherwise you lose your business. So it's a fundamental realignment that requires a lot of speed. We call this in our company palpably. So this is our strategy. We change very fast and we try to apply also good planning, which we call Merry. So many, many success factors. We change very fast on a very strong plan. How do you do that? I said to my American colleagues, when you at the same time we had to produce and sell cars, you go to the four or five in Los Angeles, everybody knows the millions of cars passing there. They are always working, always transforming, so they can never shut down and say, hey, let's do this quickly. Now, we cannot do that either. So we need to maintain our investors so happy, then we're doing a decent, decent job there. But it's a fundamental change. But again, looking in the mid to long term, it's all about investing a bit more local. So you cannot anymore rely on a global company and produce in Korea. I ship cars everywhere and that is not the solution for each market is a different one. And in our particular case, obviously, the US is very, very important. We cannot just simply abandon. But in a way, this could be an opportunity. For example, some of the competitors cannot enter in that market. China, we see an opportunity, right? So it's a large market that's growing. Things are changing. Also, we want to do better in Europe, but regulation is having a huge impact. But the fundamental, fundamentally, you know, things that we used to do once every six months and then maybe once every one month during COVID now is like every day, hey, the regulation change, What do you do? Okay, ERA is no longer there. What do you do about leasing? How about this? So it's a law of a very active, hands-on proactive management to make the most out of the situation and take advantage. This is an opportunity for those who are better than others.
It also sounds exhausting as a leader. Does it need, is it different leadership qualities that you need in 2025 to perfect all the changes?
Definitely, yes. I think we need to have people who are very connected, who are all the time talking to the shareholders, to the investors, but also to the end customer, to you. Close to the politicians. So we are spending more time and more time talking to politicians than in my previous life, right? Because things changed so dramatically. And if you are late, then you lose, right? So it changes dramatically. But then we need to be in good shape. We need to sleep fast, as I say. So there's not so much opportunity to to sleep in a day and then always keep changing and keep adapting. And this is what is making a group one of the best performing groups nowadays under the leadership of U.S. Chang.
I mean, do you hear the same? Are you like a banker to exhausted CEOs that are just trying to, you know, survive, to try and keep up with the news flow?
Yeah, everything. Because I said music is basically the story of my life. So, so, so it is absolutely true. I think what's important here is to see through certain of the short-term challenges. I mean, you know, we have a resilient business. We've we've been growing in the number of areas. Even the areas most challenged, such as trade, has been growing quarter after quarter, steadily, robustly. We're here to support our customers. We're here to provide them working capital facilities where they needed, etc., and that's doing well. If I look at our share price, it's performed well. We've looked at the volatility of our share price is mostly been driven by speculation on what the taxation is going to be. So the underlying business and the resilience is here, but it's the short-term speculation, not even fact speculation of what's the taxation on banks, specifically in the UK, that's driven most of the volatility in our share. So you have to see through that. You can't let this wake you up at night. What should wake us up at night is what's the future going to hold? How are we able to transform with the technology disruption? Are we going to be on that journey or are we going to be, you know, if you want, left behind? Then we can't afford to be left or right. So we need to be on that journey.
Do you see a world where you could also have competing financial systems actually splitting off in different networks? Is that a step too far?
So the short answer is, Francine, is no, no. There are some countries, some jurisdictions that have been that have been excluded from the financial system for, you know, many for years, some for decades. I can see your flag behind you. Those countries have been excluded for various geopolitical reasons, and they're not in the finances. Everything else, we see it as a cohesive financial system. I want to give you some illustration. For 60% of our largest customers, wholesale customers in mainland China, all US companies in mind that these are not US companies who are looking to manufacture in China to sell back into the US. The vast majority of them are actually manufacturing mainland China for the China domestic market or for the Asian market opportunities, right? Now, they are very successful. They're making very good revenues and very good profits from this business, and they're paying very large dividends back into the US for the US shareholders. So, so that that is not going to go away. That is the reality of how this world is integrated and how the financial system is integrated. I can say exactly the same thing about India. Look, I can say for you and I live in London, right? If you jump on a, you know, an electric black cab or jump an electric double-decker red bus, or if you're buying renewable energy in the UK, chances are you're buying Chinese, and that's the reality. And that you're not expecting it to change. I think the resilience of this underlying fabric is is absolutely here to stay. What has changed is that there are certain assets which have now become or be deemed national security assets, such as code genii type code, such as chips, semiconductors, the most advanced ones of them, such as data and cloud. And those assets are going to fragment. Those assets are going to have national boundaries. You know, data has had national boundaries for some time. Data visas are required to move data around. Regulation is started to have a lot of national boundaries, and there's going to be more highly strategic assets that will have national boundaries. And we, as the financial system, but also all our customers will have to respect that and ensure that we're protecting, you know, the national considerations for that. You step out of these assets and there is a multitude. There is a huge ocean of opportunities where business is still conducted on a cross-border basis and business will continue to be conducted and cross-border based. And we believe that that's going to be the case.
And check out, where are we actually in this global realignment? Are we 60% there? Are we 70% there, or is it ever evolving? And again, was it accelerated by the Trump administration or was it a sea change?
Right. I guess under this theme of realignment, there are several threads, right? You have, I think what we have seen so far has been on the security side, on the trade side, on the supply chain side. I think finance is the one that I'm worried about, right? Because I think for other parts, there are some very difficult issues, let's say, on trade with the tariff and all this adjustment is not really the fundamental, right? Because the fundamental has to come down to investment savings. Imbalances across countries is a very difficult rewiring of that. Essentially, I think the Chinese need to increase their consumption. The Americans need to reduce their consumption. But that's a very difficult sort of balance to achieve. Trade, in a way, is a symptom of that, right? So that is happening. But maybe just frankly, at the surface, supply chain rewiring is very expensive, right? Because we already have had this kind of kind of global arrangement for so many years. Many of the parts are already in place for decades. To try and shift that is going to be very costly and actually is very risky, right? Because a disruption in one part can send, you know, shock waves into the whole chain. We have seen it, in fact, right? Quite a few examples. But I'm hoping that on the fine finance side, we don't get there, that there's enough wisdom that a big part of that global financial system, in a way, is global good, public good. So be very careful in rewiring that. I was just talking to an institution that is involved in that whole kind of plumbing system, and they are in a certain jurisdiction. And of course, because of that, they are subject to the law of the land. And if the country imposes, for example, sanctions on another country, they have to comply, right? But actually, at that institution, if you look at their function, which is really global public good, I was joking with them that they should be subject to UN Security Council's jurisdiction. So that's enough veto, right, to make sure that they are not having to act in a certain way. Because once you touch that financial plumbing, now, I think there will be a lot of unintended consequences and the cost will be significantly higher than what we have seen on the street fight.
But do you worry, therefore? I mean, what do you worry exactly about? Is it like unpredictable inflation or, you know?
Well, just weaponization, systemic weaponization of financial is financial systems. All right. Do you see decoupling in the world? Will do that? I think there are a lot of temptation to do that. But so far, I'm quite encouraged that the people in charge, I think, have the wisdom to recognize that it might backfire.
Jose, can you update us on what happened at the Georgia Battery plant in the US? There was a raid, and you said that will set you back three months. Right.
So that was a bad surprise. And then the number one surprise was that they received a phone call and then what happened? And then it was not all planned, but it was portrayed as if it was our plant, it was an LG plant, and that we are shareholders, but it's a separate plant from the assembly plant. Well, I think there was a kind of an independent activity from either the federal government and the state government. I got a phone call from the White House apologizing for what happened. There were not a word I didn't know. So why this is happening when the company, as part of the South Korea tariff negotiation, is really making big commitments to invest in the country. As I mentioned earlier, $26 billion in the next four years versus $20.5 billion in the last 40 years, which is the time we've operated in the US. That was a kind of a big surprise. The governor of Georgia, Governor Kemp, also called me and said, you know, I don't know what will happen. This is not a state jurisdiction. So apparently somebody made a phone call and it made it look like there were illegal immigrants. That's absolutely not the case. And in fact, President Trump didn't want those workers to get back to Korea. The fact is, there are a number of jobs that require to be specialized and in particular in the battery business, and a number of processes and technologies that are not available in a very well-developed country like the United States. And then you need to bring specialized people to do it. The system, the immigration system does not recognize that. So I think if we want to be positive, I always try to apply the PMA attitude, positive mentality, attitude, right? So the good thing is that as a result, we've had a lot of discussions with the federal government, with the state, with the immigration authorities, both in Korea and in the United States. And now we're finding very good permanent solutions not only for our suppliers like LG, but for our own people. We have thousands of people who come and help us to establish the operation, and then they go back to to Korea. And I think for others as well, we are coordinating much better among all the all the companies that are impacted. And I think at the same time, and it hasn't dented actually your commitment to the US?
No, not at all. Not at all. I mean, we need to look at the things in the long term. This happened, right? One week before a we were having the very first CEO Investor Day outside of Korea in the history of the company, and it was me, the first non-Korean CEO making the presentation in New York. And they asked me, Are you going to change your plans? Oh, no, we are not here for the short term. We've been in this country for many years. This is the number one market is where we make the most. We cannot just simply because something happened, which is obviously an accident, and then you get even apologies from from the president of the United States of saying that this is this is going to change our plan. No, on the contrary. I said we double down. We want to maintain our investment in the country. We think that in the mid to long term, things are going to get better. But obviously, we need to make also a lot of adjustments to the supply chain to the products that we're going to produce. But ultimately, it's all about having good products in the market, being very competitive, high quality, top safety and durability, reliability to be competitive in the marketplace. If you don't get back to your fundamentals and you change your strategy when you have an event, then things are going to change. So, for example, by the end of September, I refinished, right? And then OEM, suddenly the consumers were getting benefit of $75,000 if you bought an electric vehicle. Well, we see what happens in China. We see what happens in Europe and even in the United States in many states, you know, the EV is a better solution for the consumer. So we have maintained our plan A. We not only maintain the Savannah plant investment, which is about $2.6 billion and more than 8,500 people, but we have announced an expansion. But then what we're doing here with this expansion, instead of doing all electric vehicles, we're going to produce also hybrid vehicles in the range of a and a fuel cell, TV, etc. So flexibility, adaptability, being very fast to be able to capitalize on the initial situation. So remember, we were announcing the new factory, the grand opening in March, the liberation day when the president announced it. That is perfect timing. Perfect timing. So they were asking me, wow, you're such a visionary, right? So you knew this was happening and then you are localizing yourself. Yes, exactly. But so the things don't work this way, right? So you need to have a plan and stick to your plan, adapt to be very fast and always look at the different players to maintain a good performance to, you know, do shareholders and ultimately to delight your customers. We call it Sunbeam, which is the owner gas concept in Korea.
So just a reminder, we have 10 minutes left, and I'm still waiting for questions, so feel free. Otherwise, I have a million more questions. Lee, when you look at what you were talking about, renewables, but also I, I mean, in this new, ever-changing, ever-evolving world, who will be the winners and losers? And actually, how much disruption are you expecting in your own company in five years?
Right. So no, envision, we not can consider ourselves an energy company. We also position ourselves as a company. We are applying, you know, physical AI, in particular, which is more than a large language model. We are going to put these physical laws in the AI models to harness the energy system. For instance, today we are making our green hydrogen as cost-competitive as great. Today already is 1.5 million tank ammonium facility has been built up. So the first phase through 300,000 ton but reached a cost parity. Why? How can we change to manage that? We put this wing sawdust storage in the Gobi Desert of Inner Mongolia. The only resources we are use is a wing and some shot and the waste water from the city. There are three elements. Then we create green hydrogen and bring ammonia in. So how can we achieve that? AI is playing a very important role. Firstly, we're building AI climate, a foundation model which makes us to look through the weather pattern, which is supposed to supercomputing to figure out what is happening if beyond seven days. No clue. But we are able to have improved 50% accuracy for weather forecasting. Then we are able to adjust all the renewable production. Secondly, because the system is so complex, it's the largest independent renewable energy system in the world. So have so many devices. Human coordination is almost impossible. We're using AI, of course, with the physical boundary to manage such electrical and a chemical facility. So then we are able to use 100% renewable energy, which we are, because eight to green hydrogen costs 80% coming from electricity. We have such a low-cost electricity. Then we're making green hydrogen cost-competitive. So that's we always feel this is the impact of the AI. But we also using our project as a training base for Energy Foundation model because it's independent system and to act is so complicated. We are training our model every day. So then it's become much more, much more efficient.
Thank you. So we only have a couple of minutes left, so I'll ask you, you know, almost like fire, like fire, quick fire, rapid questions, target. We have a question. Now, the Q&A questions are coming in. I have many. How do you think about dollarization and implications for emerging alternatives to the dollar? Is it stablecoin as a digital basket? And I guess this goes back to my underlying questions, which is winners and losers over the next decade.
Yeah, I mean, this question has been talked about quite a lot, right? I guess a different definition to this, the dollarization one version is that what the US loses reserve currency status. That seems like a remote possibility, right? Unless, I guess, the foundation of the US system cracks. We we don't really see that, right? There are some challenges with regard to, you know, that and fiscal position growth is very important. It does seem like a lot of things are riding on. I try to get growth. There's a lot of reliance on delivery productivity. So if it doesn't happen, you might get a bit of a hairline crack in up to some of this. But we don't, we don't see that there are no clear alternatives. I mean, I would say in the currency market, investors are adjusting. Their currency exposure is quite a normal thing, right? If you have, let's say, a very high exposure to a particular currency or country, adjusting it down 10% is not unusual. And the good thing is that financial market today allows for this kind of adjustment. So I would say that, you know, there are enough levels for investors and other participants to adjust a position without causing a big problem.
Georges?
Francine, I agree with Chow Kiat. Just to give you some numbers, 50% of global payments are done in dollars. 60% of global reserves are US dollar-based. 80% of trade is financed in dollars, and more than 95% of foreign exchange is done against dollars. So that will erode, but that's not going to change the landscape. The dollar remains the major currency, right? That it will erode because there will be diversification, there will be usage of other currencies, there'll be more and more usage of gold and reserve management. But it's not going to materially change the picture, certainly not in my career, probably not in my lifetime. This being said, payment trades and this is kind of going back to what Lei was saying. Payment trades will evolve. I mean, we are still on payment rails that have been invented many decades ago, and they've become much more efficient, of course, over the many decades. But the fact that we need to refresh 24/7 instantaneous, frictionless payment capabilities, which could be provided among other by blockchain technology, is is definitely a likely outcome of diversification of payment rails, and it's very important that we work on them. We test them, we make them more and more resilient. We make them bank-grade standard, financial services grade standard. But but it that evolution is much more real than if you want to digitalization.
When you look at winners and losers, I know that you have a very clear advantage, certainly because of when you look at Elon Musk's, you know, focus on robots and humanoid robots, you're like decades ahead. But given the fast pace of advanced driverless cars, of robotics, I mean, is that enough?
Couple of decades advancing is never enough. And in fact, with our companies, I would argue, one of the most advanced. I think we are a technology company who happens to be in the automotive business, right? Because we we produce shapes. We have robots with Boston Dynamics, we do logistics with lobbies, we have our own bank and capital. Our autonomous driving company, Motional, for example. But that's never enough. So as an example, we thought that is strategically would be good for us to have a strong partnership with the best domestic company, for example, in the US. So we made a partnership with General Motors, right, to co-produce, to co-develop and to achieve synergies in terms of localization. When Hyundai Plus plus Genesis are the third largest OEM in volume, the second in profits, but we still think we could have more synergies. So we partnered with GM. We've made a partnership with Waymo, for example, for robotaxis or with Amazon for all sales and many others, right? So we think that robotics, autonomous driving, all this is here today. We have the technology today, and it's more of a matter of regulation. So therefore, we need to look for the next frontiers and continue to adopt. Again, the fundamentals is the most important. How do you take advantage of this and then to to your earlier point? Okay. So I think very, very important to avoid having a transformation. What you lose business is how you transform when you grow. So we presented a plan to grow 35% volume by 2030, 55% on Genesis, which is double-digit profit. So you have to think forward, breakthrough to be able to navigate winning instead of, you know, thinking, you know, you're going to lose. So they either grow or go. So you have to be careful.
Gentlemen, thank you so much for a spirited conversation. Thank you so much.