Saudi crown prince Mohammed bin Salman’s 2030 growth plan bears fruit as Hyundai inks deal to join Lucid as next carmaker in the Gulf

In his race to diversify Saudi Arabia’s oil-dependent economy away from black gold, Crown Prince Mohammed bin Salman just won a major victory. 

Starting as early as 2026, Hyundai expects to begin local production of up to 50,000 combustion engine and electric vehicle cars annually with the help of an investment estimated to exceed half a billion dollars. 

The new commercial joint venture will be 70% majority owned by the Public Investment Fund (PIF), the Saudi sovereign wealth fund, while the South Korean automaker will control the remaining minority stake.

“We are excited about the potential of this venture to drive significant advancements in vehicle production, fostering a sustainable and eco-friendly automotive future in the region,” Hyundai CEO Jaehoon Chang said in a statement.

Hyundai did not elaborate as to whether it would invest its own money into the project or whether its 30% stake reflects a non-cash contribution in kind, for example through the planned transfer of knowledge and expertise. No location was named, but the country’s economic hub Jeddah would be a leading candidate. 

Fast-growing economy

Saudi Arabia was the fastest growing G20 nation in the world last year, thanks in no small part to the gains its flagship state-owned oil producer Aramco got from soaring energy prices sparked by Russian president Vladimir Putin’s invasion of Ukraine,.

Adopting a similar strategy to China, bin Salman wants to introduce economic reforms without political ones that may pose a risk to the House of Saud’s continued reign. To realize his Vision 2030 strategy to modernize the Saudi economy, he will need to convince companies to look past its human rights abuses and other controversies such as the 2018 murder of Saudi dissident Jamal Khashoggi by government agents.

Attracting car manufacturers and their supplier parks would be a major victory. The industry traditionally plays a key role among developing countries in driving prosperity, since it sits atop the economic pyramid. That’s because it sources parts from virtually every sector beneath it, including steel and aluminum for the body, chemicals for paint and plastics and, increasingly, high-tech electronics. 

Only last month luxury EV manufacturer Lucid opened the monarchy’s first ever automotive facility in King Abdullah Economic City, near Jeddah, with a capacity to build 5,000 cars annually using what are called semi knocked-down (SKD) kits. 

This kind of low value-added work, in which only final assembly is performed, is a common risk-mitigation strategy in the industry when expanding into new markets. Yet Lucid, which counts PIF as its anchor shareholder, aims to add full-scale manufacturing of roughly 150,000 cars by the middle of the decade. 

In two years, Lucid could be joined by Ceer Motors, the first Saudi EV brand that is a joint venture between PIF and Taiwan’s Apple iPhone contract manufacturer Foxconn. A new National Automotive and Mobility Investment Company called Tasaru, launched earlier this month, aims to furthermore situate suppliers in the country.

Peak demand expected for 2026

But it will take more to develop Jeddah into the kind of competitive automotive cluster found in parts of Germany, Japan and the United States. It would be almost impossible to accomplish this through two small challenger brands facing uncertain outlooks and operating plants that likely would not have gotten off the ground without hefty government support.

The Saudis need to reach a critical threshold in scale for the effort to be self-sustaining, and winning a trusted partner like an industry incumbent definitely helps.  

“Partnering with Hyundai is another significant milestone for PIF […], aligning closely with our existing stakes in Lucid and Ceer Motors, and amplifying the breadth of Saudi Arabia’s automotive and mobility value chain,” said Yazeed Al-Humied, deputy governor at PIF and head of its Middle East and North Africa investments. 

Hyundai’s follow-up investment could be the proof point other companies need before they too are willing to invest in the local economy. 

One reason is that skilled labor, a key criteria for auto execs when selecting sites, is hard to find in Saudi Arabia, since Riyadh has traditionally relied on importing both white collar employees and menial labor from abroad. Roughly two-thirds of all Saudi nationals collect government paychecks, which ensures a level of dependency on the continued rule of the royal dynasty. 

The House of Saud faces a broader shift away from fossil fuels that threatens its strategic value to key allies like the United States. 

In a June report, the International Energy Agency predicted the world’s collective appetite for oil is “set to slow almost to a halt” in the coming years amid projections that the increase in annual demand will “shrivel” from 2.4 million barrels per day to just 400,000 in 2028. 

The chief culprit for this is transport fuels. The next three years of growth are expected to mark the last before a rising tide of electric vehicles usher in an era of steady decline for crude distillates like gasoline. This may be behind the recent wave of consolidation in the oil industry.

“The shift to a clean energy economy is picking up pace, with a peak in global oil demand in sight before the end of this decade,” said IEA executive director Fatih Birol. “Oil producers need to pay careful attention to the gathering pace of change and calibrate their investment decisions to ensure an orderly transition.” 

While this technocratic recommendation is phrased innocuously, Birol is warning petrodollar states lacking democratic legitimacy that they could face widescale disruption to their economies should they not diversify. This poses a risk to the stability repressive regimes prize.

Developing a small but thriving auto industry could go a long way in insulating the monarchy from domestic unrest.

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