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

HD Hyundai Electric Co., a South Korean electric power equipment maker, plans to invest about half of its 2024 operating profit, estimated at 720 billion won ($493 million), to seize an opportunity amid a transformer market boom by easing a supply bottleneck.

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

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

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

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

With the aggressive investment, HD Hyundai Electric will up the ante in a 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 reflects its confidence that the transformer supercycle will prevail over concerns about excessive investment, said an industry official.

TRANSFORMER DEMAND IS PARTICULARLY HIGH IN THE US

Demand for power transformers is particularly high in the US, where replacement demand is strong given that some 70% of the country’s power grid transformers are 25 years or older, according to the US Department of Energy.

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

Its average lifetime is 30 years.

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

Moreover, the world’s largest economy is seeing data centers spring up throughout the country amid the AI boom. The more data centers, the greater the demand for high-capacity transformers.

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

SUPPLY CRUNCH

Due to the surge in demand for transformers, the transformer supply bottleneck in the US has worsened in recent years.

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

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

According to HD Hyundai Electric’s internal data, it will also take as long as five years to deliver the transformers now on order to their owners.

To meet this insatiable demand, the company has been running its transformer plants in Korea and the US at full capacity.

The company fears that without production capacity ramp-ups, it would not be able to meet delivery deadlines.

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% over 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.

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

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 company vice chairman from president late last year.  

Write to Sang Hoon Sung and Jin-Won Kim at uphoon@hankyung.com
Sookyung Seo edited this article.