Hyundai Kia Motors Faces Export Roadblocks, Q2 Earnings Also 'Uncertain'

Q2 Operating Profit Consensus: Hyundai Motor -45%, Kia -37%
Export Slump Deepens, Earnings Expected to Decline
Hyundai and Kia Adjust Domestic Plant Production Due to High Export Ratio
Domestic Market Remains a Support... Hyundai's New Car Waiting List at 120,000 Units

[Asia Economy Reporter Su-yeon Woo] The impact of the novel coronavirus infection (COVID-19) has severely hit Hyundai Kia Motors' performance in the first quarter of this year, and the performance slump is expected to deepen in the second quarter as well. Since March, the spread of COVID-19 has made overseas market sales virtually impossible, leading to a sharp increase in inventory and a surge in overseas order cancellations. With export routes blocked, Hyundai Kia Motors has started adjusting domestic factory production volumes from this month.

According to FnGuide on the 24th, Hyundai Motor's expected consensus for the second quarter of this year (average estimate by securities firms) predicts sales of 24.2365 trillion KRW and operating profit of 682.4 billion KRW, representing decreases of 10.1% and 44.9% respectively compared to the same period last year. Kia Motors is also expected to see sales of 13.4809 trillion KRW and operating profit of 337 billion KRW, down 7.1% and 36.8% year-on-year respectively.

The decline in sales and operating profit in the second quarter is expected to be greater than in the first quarter. Until the first quarter, Hyundai Kia Motors' sales had barely maintained an upward trend thanks to the exchange rate and the new car effect centered on sports utility vehicles (SUVs). However, a clear downward trend had already begun in profits.

In the first quarter, Hyundai Motor's operating profit, excluding the one-time gain of 106 billion KRW from the establishment of the Aptiv joint venture (JV), decreased by 8% year-on-year to 758 billion KRW, while Kia Motors' operating profit fell by 25% to 444.5 billion KRW. The operating profit margin was 3.4% for Hyundai Motor, unchanged from the previous year, and 3.1% for Kia Motors, down 1.7 percentage points year-on-year.

Hyundai Kia Motors' global sales in the first quarter could not escape the 'COVID-19 storm.' Hyundai Motor's global sales fell below the 1 million unit mark for the first time in over nine years, and Kia Motors' overseas sales dropped by 2.6%, dampening the overall atmosphere. In particular, Kia Motors' ordinary profit reflected the worsening performance of its Chinese subsidiary affected by COVID-19 from February, recording 281.9 billion KRW, a 70.2% decrease year-on-year.

At Hyundai Motor's earnings conference call yesterday, Kim Sang-hyun, Executive Vice President and Head of Hyundai Motor's Finance Division, said, "The global automobile market as a whole is facing unprecedented uncertainty due to the impact of COVID-19," adding, "Although it varies by region, a rapid V-shaped recovery in performance is unlikely."

The negative impact of COVID-19 that began in the first quarter will continue into the second quarter. The fixed cost burden of March production, which will be sold in earnest from April, is expected to add further pressure on profitability. To overcome this, Hyundai Kia Motors has devised a plan to focus on the domestic market where demand still exists, but with over 65% of domestic factory production destined for export, if overseas demand does not recover, performance damage for the remainder of the year seems inevitable.

To defend profitability, Hyundai Kia Motors recently revised its domestic factory operation plans on a weekly basis to secure production flexibility. Operating factories without overseas demand only increases inventory and fixed costs, expanding losses. Starting next week, Kia Motors has decided to shut down its Sohari 1 and 2 plants and Gwangju Plant 2, which have high export ratios, for two weeks, and Hyundai Motor also suspended operations of Ulsan Plant 5 Line 2 for a week starting from the 13th.

Now, the only remaining support is the domestic market. New key models launched this year, such as the Genesis GV80 and G80, and the Avante, are performing well, offsetting the decline in overseas demand. Currently, Hyundai Motor's domestic new car delivery backlog is estimated at around 120,000 units. In the second half of the year, the strategy is to attract domestic demand by strengthening the new car lineup with the fully redesigned Hyundai Tucson, the second Genesis SUV GV70, and the facelifted Santa Fe.

Liquidity management in preparation for the prolonged COVID-19 situation is also an important area of focus. Hyundai Motor holds 11 trillion KRW in reserved cash assets and is said to have liquidity management capabilities through the end of the year. Kia Motors has also announced plans to reduce unnecessary costs, secure over 3 trillion KRW in external funding this year, and recently issued corporate bonds to secure liquidity exceeding 10 trillion KRW.

Executive Vice President Kim said, "We are reviewing various internal scenarios regarding future demand and sales forecasts, and we will establish crisis response systems by region and prepare various measures for liquidity risk management, strategic inventory operation, flexible production systems, and stable parts supply."

This content was produced with the assistance of AI translation services.