How Did Hyundai Get So Cool?

Hyundai Motor was dreaming up an answer to Tesla when the company’s top executive sent its lead designer a photo of a bizarre-looking car that last rolled off assembly lines more than 70 years ago.

The Stout Scarab, manufactured in Michigan in the 1930s and 1940s, looked like an outlandish cross between a bus and a pontoon.

“Let’s face it, 10 years ago, our design strategy was all about the fast follower,” said SangYup Lee, the Hyundai designer. He said Euisun Chung, executive chair of Hyundai and its affiliate Kia, who sent the photo, wanted to stop imitating and get ahead of rivals.

“The message was: Inspiration can come from anywhere,” said Lee.

The Hyundai electric car that drew inspiration from the Scarab’s eye-catching streamline design, the Ioniq 6, has been a hit with critics. At the New York auto show in April, it was voted World Car of the Year.

Hyundai and Kia, the sibling Korean carmakers, have long had a reputation for making inexpensive, uninspiring cars. Over the past few years, though, they have become one of the leaders in the electric-vehicle race, with models that are turning heads at rival car companies—and among car buyers.

Asked last year about competition in the EV sector, Ford Motor Chief Executive Jim Farley said: “The ones I’m paying the most attention to are Hyundai/Kia, the Chinese and Tesla. That’s my list.”

Behind the push has been Chung, 52 years old, who has pressed for investment in EVs and moonshot technologies such as flying cars and robots. In 2020, he took control of the Hyundai Motor Group,one of Korea’s largest family-run conglomerates, from his father, Chung Mong-Koo.

Last year, Hyundai became the world’s third-largest automaking group, with 6.85 million vehicles sold, behind only Toyota Motor and Volkswagen. Now, the company, currently the third-largest seller of EVs in the U.S., is setting its sights on Tesla.

Tesla’s enormous success with its Model 3 showed the industry that the EV market was much bigger than many people thought, spurring Hyundai and Kia to move faster, said Michael O’Brien, a former vice president at Hyundai. “Hyundai leadership realises that the EV market is a jump ball,” he said.

Chung, whose grandfather founded the business 76 years ago, has told employees repeatedly that the company needs to be more forward-leaning. “We will not fear risks and only be reactive,” he told workers in January.

Hyundai and Kia have gone on a hiring spree, luring high-profile designers from other carmakers, including from German luxury brands. Their aim is to make their vehicles look and feel more luxurious.

Ford’s Farley lauded Hyundai’s Ioniq 5, which came out 2021, noting that some software features were better than Ford’s own. “That company has really found their stride with electric vehicles,” he said.

Tesla’s Elon Musk said last summer in a tweet about the EV market: “Hyundai is doing pretty good.”

Hyundai and Kia are a part of a conglomerate that also owns steel mills, shipyards and construction firms. It is largely controlled by Chung’s family through their shareholdings in the motor company and other affiliates.

The company got started in the auto business in 1967, when the country was still recovering from the Korean War, at first doing contract work for Ford. Its first in-house vehicles, the Pony and Excel, were inexpensive and so prone to quality problems that they became fodder for comedians on late-night TV.

Kia began in 1944 as a manufacturer of metal parts and bicycles, and a decade later, licensed versions of Honda motorcycles and Mazda trucks and cars. After it declared bankruptcy in 1997, Hyundai purchased a controlling stake. It now owns nearly 34%.

Hyundai entered the U.S. car market in 1986, followed by Kia in 1993. Both were budget brands. When Chung’s father took over in 1996, he made solving quality woes a priority, overhauling manufacturing operations.

Decisions were made mostly by executives in Seoul, far from the U.S. market that was driving the bulk of profits, former executives said. “Hyundai was always known in Korea as the most conservative and the most militarylike,” said Frank Ahrens, Hyundai’s former head of communications. He likened directives from the chairman to imperial decrees. “If you want a pyramid, that’s a way to do it—get a whole bunch of people pushing in the right direction,” he said.

Both Hyundai and Kia were slow to react to the SUV boom in the U.S., despite pleas from stateside executives, the former executives said. For years, they didn’t do much to expand their U.S. factories, leaving them struggling to build enough vehicles when demand surged for popular models such as the Hyundai Santa Fe and Tucson.

Another embarrassment was a surge in auto thefts following a social-media challenge that targeted certain Hyundai and Kia models as easy to steal. Several states and insurers have sued the companies over the thefts. On Thursday, Hyundai and Kia agreed to pay up to $200 million to owners of stolen cars to settle a class-action lawsuit.

When the Korean leadership takes notice, though, decisions are fast-tracked and change can come swiftly, former executives said. “They’ll throw a new engine in whenever the engine is ready,” said JP Garvey, a Hyundai and Kia dealer in New York. “They constantly make tiny incremental changes, and they don’t stop.”

At the New York auto show in April, Hyundai’s luxury brand, Genesis, showed off a sportier version of its new GV80 SUV. The vehicle was a concept car—not one Genesis intended to make.

It was such a hit that the bosses in Korea decided that night to put it into production, said José Muñoz, Hyundai’s president and chief operating officer, whom Chung hired from Nissan Motor in 2019. “There are no arguments,” Muñoz said. “Once the decision is made, execution is very fast.”

Chung has installed overseas executives in key management positions. He hired designer Peter Schreyer from Volkswagen, where he had helped redesign the iconic Beetle, then promoted him to president, the first non-Korean to reach that level in Hyundai’s history.

“The chairman wanted something new, and the focus was on good styling,” said Ray Ng, a former Kia designer who worked closely with Schreyer.

Chung’s biggest push has been with EVs, a sector Hyundai and Kia entered in 2010 when Hyundai released the Blueon in Korea. Kia followed with the Ray EV in 2011. A second model, an electric Kia Soul, went on sale in the U.S., Europe and South Korea in 2014, two years before General Motors released its rival Chevy Bolt.

The EV market presents unique challenges. Nearly all Hyundai and Kia EVs are built outside the U.S. Recent revisions to the $7,500 federal tax credit in the U.S. for EV purchases have made foreign-built EVs ineligible for the subsidy. Sales in the U.S. of Hyundai and Kia EVs have been declining since the tax revisions.

A new $5.5 billion factory complex is in the works for both Hyundai and Kia to build EVs in Georgia, but it won’t open until the end of next year, at the earliest.

Tesla’s success with the Model 3, which came to market in 2017, opened eyes at Hyundai, said O’Brien, the former vice president. “Everyone saw they went from a niche player to a core player in one model,” he said. “People in Korea, and Hyundai, saw Tesla as a tech company rather than a car company. Rather than focusing on four wheels, oil and brakes, they were focused on technology, and that was very appealing in Korea.”

While other automakers dithered about whether the batteries were too expensive and short on range, Chung was undeterred, O’Brien said.

After Chung became executive chairman in 2020, Hyundai and Kia announced plans to introduce 31 battery-powered models. The companies aim to become the third-largest seller of EVs globally by 2030. Tesla and China’s BYD are the current global leaders.

That the Hyundai Ioniq 6 took inspiration from the Stout Scarab is one example of how the company is leaning on design to set it apart from rivals. Lee, the designer, said the streamlined shape recalls the period in the 1930s and 1940s when car design borrowed from the aerospace industry.

The design has the added benefit of tacking on miles to the car’s range, giving it one of the lowest drag coefficients in the industry—a measure of how aerodynamic a shape is.

When interest in EVs surged during the pandemic, Hyundai and Kia were among the few car companies that had a selection of electric and hybrid models on dealership lots. On top of that, the companies had stockpiled semiconductors, allowing them to avoid the worst of the supply-chain related shutdowns in recent years, giving them more stock to sell, dealers said.

Hyundai and Kia have said that most of their EV customers are coming to the brand for the first time. They also tend to be wealthier than customers of the companies’ other models. Last year, the biggest cohort of Hyundai Ioniq 5 and Kia EV6 buyers earned more than $250,000 a year, compared with between $50,000 and $75,000 for all models, according to data from S&P Global Mobility.

Andrew Mancall, a doctor from Portland, Maine, is among the Hyundai converts. A former Audi owner, he wanted to buy an EV for his next car and put himself on a number of waiting lists, including for the Ford Mustang Mach-E.

When his number came up for the Mach-E, he passed on it and bought the Hyundai Ioniq 5. He said he was sold on the driving dynamics and what he described as better technology than on the Ford. After a nine-month wait, he took delivery of his Hyundai.

“Am I a Hyundai person? A couple years ago, I probably would have said no,” he said. “I guess the answer now is, yes.”

—Mike Colias contributed to this article.