Hyundai Motor Group Executive Chair Chung Euisun, right, shakes hands with General Motors Chair and CEO Mary Barra during a memorandum of understanding signing ceremony for their alliance at Genesis House in New York in this handout photo released on Thursday. Courtesy of Hyundai Motor Company

Hyundai Hyundai Motor Company and General Motors (GM) recently formed an alliance through a non-binding memorandum of understanding (MOU). While the MOU outlines broad areas of collaboration, it also indicates that both automotive giants are aiming to strengthen their resilience amid the global slowdown in electric vehicle (EV) demand, often referred to as the "chasm."

In the MOU announced on Thursday, the two sides have chosen joint development and manufacturing of commercial and passenger vehicles, joint management of supply chains and joint research for clean energy technologies as their main areas of partnership.

Under the MOU, the two companies will jointly develop internal combustion engines (ICE) and electric and hybrid vehicles and jointly source raw materials for batteries, steel and other materials.

This boosted GM's share price by 3.25 percent on Thursday, while Hyundai Motor also soared by 2.16 percent to close at 237,000 won on Friday, indicating that the market is expecting the alliance to benefit both companies.

The new GM logo is seen on the facade of General Motors' headquarters in Detroit, Mich., March 16, 2021. Reuters-Yonhap

Among the agreements outlined in the MOU, joint sourcing of raw materials is expected to yield the most immediate benefits, as securing materials at reasonable costs directly impacts the profitability of both companies.

In terms of EV batteries, battery makers have been holding an upper hand in their supply negotiations with carmakers, due to battery's importance in the EV industry. When Hyundai Motor and GM jointly source battery raw materials, their purchase volume will increase, bringing greater leverage regarding price negotiations with battery makers.

"If realized, bulk purchasing could lead to cost savings, and by leveraging GM's North American supply chain for battery materials, they are expected to more easily comply with the Inflation Reduction Act as well," SK Securities analyst Yoon Hyuk-jin said.

Another strategic approach in the MOU is that their joint development will include ICE and hybrid vehicles.

In recent years, automakers have been forming various alliances and partnerships to develop and manufacture EVs, but such collaborations are rare in the realm of conventional engine vehicles as the industry continues to transition to the era of electric vehicles.

A family unveils a new Hyundai car at one of the motor group's showrooms in New Delhi, India, Sept. 6. Reuters-Yonhap

In this context, Hyundai Motor and GM decided to collaborate on the development of internal combustion engines and hybrid vehicles, anticipating that the current EV chasm (slowdown) may last longer than initially expected.

Ford recently announced that it killed a planned three-row electric SUV and pushed back a new electric version of its best-selling pickup, the F-150. GM also said in July that it slowed its plans for EVs, citing profitability.

Though carmakers are confident they are moving in the right direction with EVs, consumers have been way slower than had been anticipated. To cope with this slowdown, Hyundai Motor and GM seem to be extending their focus on ICE and hybrid vehicles while cutting costs through joint development.

"While sharing the various costs required for the development and production of new cars, Hyundai Motor and GM can also improve capital efficiency and enhance cost competitiveness through joint procurement of key raw materials," Hana Financial Investment analyst Song Sun-jae said.

While GM has built its reputation with vehicle stability and engine capabilities, Hyundai Motor has established its global status in the hybrid vehicle market.

"Hyundai Motor's weakness in the North American market is the absence of a pickup truck, while GM lacks hybrid technology," SK Securities' Yoon said. "If the MOU is successfully executed, it could lead to the release of Hyundai pickup trucks and GM hybrid vehicles. Through rebadging (releasing one model under multiple brand emblems), both companies could significantly reduce costs related to new car development and distribution networks."

Joint production is also a benefit of the alliance. Hyundai Motor could benefit from GM's extensive infrastructure in key regions including Mexico, Brazil and Argentina, enabling broader market access. GM, on the other hand, could use Hyundai Motor's facilities in regions where it had previously withdrawn, such as Europe and India.

"The two sides' collaboration is at its infant stage, vaguely suggesting which part they can join forces," Hana's Song said. "However, with the global EV market slowing, intensified price competition from Chinese EV makers, and value chain penetration by autonomous vehicle companies like Tesla, Huawei, and Alphabet, the partnership between Hyundai Motor and GM is expected to unfold in a mutually beneficial and strategic manner."