HD Hyundai Electric to invest $274 mn in transformer output ramp-ups

Power transformer by HD Hyundai Electric (Courtesy of HD Hyundai Electric) 

HD Hyundai Electric Co., a South Korean electric power equipment maker, plans to invest about half of its operating profit for last year, estimated at 720 billion won ($493 million), to seize an opportunity during the transformer market boom by easing a supply bottleneck.

According to sources in the electrical equipment industry on Sunday, the electrical and electronic equipment-making unit of the world’s largest shipbuilding group holding firm HD Hyundai Co. has decided to invest 400 billion won to ramp up the production capacity of its plants in Alabama, the US and Ulsan, South Korea about 30% by early 2026. 

The total investment is tantamount to 56% of the company’s operating profit for 2024, estimated at 720 billion won, and already surpassed the operating profit of 315.2 billion won for 2023.

This is also HD Hyundai Electric’s largest-ever investment since its inception in 1977.  

Following the investment, transformer output at the US plant in Alabama will be increased to 150 units from the current 100 units and the production capacity of the Ulsan plant will rise to about 360 units from the current 300 units.

HD Hyundai Electric manufacturing complex in Ulsan, South Korea (Courtesy of HD Hyundai Electric) 

With the aggressive investment, HD Hyundai Electric will up the ante in the US transformer market grappling with an order bottleneck on stronger-than-expected demand amid the burgeoning artificial intelligence and renewable energy sectors.

The company’s decision comes as its confidence about the extension of the transformer supercycle prevailed over concerns about excessive investment, said an industry official.

TRANSFORMER DEMAND IS PARTICULARLY HIGH IN THE US

Demand for power transformers is especially high in the US where replacement demand is strong with about 70% of the country’s existing power grid transformers aged 25 years and older, according to the US Department of Energy.

A power transformer is a device that increases or lowers the voltage of electricity generated at a power plant before it is transmitted to homes and factories.

Its average lifetime is about 30 years.

Inside of HD Hyundai Electric’s transformer plant in Alabama, the US 

Considering the current power grid condition in the US, the transformer replacement demand would last for the next five to 10 years, according to HD Hyundai Electric.

Also the world’s largest economy sees data centers spring up everywhere across the country amid the AI boom. The more data centers, the higher the demand for high-capacity transformers.

Market.US forecasts that the global transformer market will grow to $123 billion in 2033 from $72 billion in 2024.

SUPPLY CRUNCH

Because of the surge in demand for transformers, the bottleneck in transformer supply in the US has aggravated in recent years.

According to global energy industry research firm Wood Mackenzie, the general transformer manufacturing lead time, the period between an order being placed and the completion of the order, has steadily increased in the US over the past two years to up to 115 to 130 weeks, while the lead time for large-sized ultra-high-capacity transformers is estimated at 120 to 210 weeks.

This means transformer suppliers have the upper hand in order negotiations.

HD Hyundai Electric celebrates the expansion of the transformer storage in its Alabama plant  (Courtesy of HD Hyundai Electric) 

According to HD Hyundai Electric’s internal data, it will also take a maximum five years to deliver the transformers ordered now to their owners.

The Korean electric power equipment maker has been running its transformer plants in Ulsan, Korea and Alabama, the US at full capacity to meet the insatiable demand.

But the company fears it would not be able to meet delivery deadlines without production capacity ramp-ups.

TO UP R&D INVESTMENT BY 30%

HD Hyundai Electric also plans to increase this year’s investment in research and development more than 30% from last year to advance its ultra-high-capacity transformer technology to stay ahead of its rivals in the US.

North America’s Delta Star and Pennsylvania Transformer Technology, Japanese players such as Hitachi Energy and Mitsubishi Electric, as well as Germany’s Siemens Energy are rushing to beef up investment in the US transformer market.

Power transformer (Courtesy of HD Hyundai Electric) 

HD Hyundai Electric controls the largest share of the US market for ultra-high-capacity transformers weighing 200 tons and more per unit and costing up to 13 billion won for each unit.

The company will also develop new technologies such as eco-friendly transformers.

HD Hyundai Electric’s power equipment orders in the US reached $1.78 billion in 2023, a fourfold increase from $390 million in 2021.

CEO Cho Seok, who has led HD Hyundai Electric’s dramatic turnaround since his term began in 2019, was promoted to the company’s vice chairman from president late last year.  

By Sang Hoon Sung and Jin-Won Kim

uphoon@hankyung.com

Sookyung Seo edited this article.

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