Kia Motors "Strong New Car Effect... But the Season Has Stalled"

1Q Earnings Decreased YoY but Exceeded Market Expectations
"Strong New Car Effect but Disappointing Due to COVID-19"

Kia Motors' newly released large SUV 'Telluride'

[Asia Economy Reporter Minwoo Lee] Despite concerns over an economic slowdown due to the novel coronavirus infection (COVID-19), Kia Motors exceeded market expectations in both sales and operating profit in the first quarter, thanks to the new car effect. However, since production disruptions caused by COVID-19 still prevent the new car effect from being fully realized, the second quarter is expected to be a critical period.

According to Kia Motors and Korea Investment & Securities on the 25th, Kia recorded sales of 14.57 trillion KRW and operating profit of 444.5 billion KRW in the first quarter of this year. Compared to the same period last year, sales decreased by 17.1% and operating profit fell by 25.2%. However, these figures surpassed the initially frozen market forecast of 13.837 trillion KRW in sales and 365 billion KRW in operating profit. Excluding the 282 billion KRW refund of ordinary wages from labor-management negotiations in the first quarter of last year, operating profit actually increased by 42.4% year-on-year.

The new car effect was considered to have performed relatively well amid the economic downturn by improving the product lineup (with the RV sales ratio rising 6.1 percentage points to 52.5%). In domestic sales, although there were some production disruptions in February due to parts supply issues, normalization afterward allowed the new car effect of models such as the Seltos and the new K5 to take hold. Sales increased by 1.1% to 116,700 units. In North America, led by the large SUV Telluride, which won both 'North American Car of the Year' and 'World Car of the Year,' sales rose 8.9% to 193,000 units.

However, demand sharply declined in China, where COVID-19 had already spread, and in Europe, where cases surged rapidly from last month. Sales in China dropped 60.7% to 32,200 units, and in Europe, sales fell 10.1% to 117,400 units. Total vehicle sales were 648,700 units, down 1.9% from the first quarter of last year.

Meanwhile, net profit for the period was 270 billion KRW, less than half of the 650 billion KRW recorded in the first quarter of last year. Despite a low effective corporate tax rate due to one-time tax benefits in the U.S., net profit fell 21% short of market forecasts and estimates. Jinwoo Kim, a researcher at Korea Investment & Securities, explained, "Poor earnings in China and significant foreign exchange losses related to dollar-denominated debt were the main reasons. If it were not for COVID-19, the new car effect would have been even more prominent, which is regrettable."

There are forecasts that the new car effect may be even more disappointing in the second quarter. This is because the impact of COVID-19 is expected to worsen in the second quarter. Since the end of last month, the spread of COVID-19 has expanded worldwide, causing markets in North America, Europe, India, and other regions to begin shutting down. Researcher Kim added, "As with Hyundai Motors, the timing of the launch of key models in the U.S. will be an important point to watch. Although a faster recovery is expected compared to other competitors, the critical hurdle of the second quarter must be overcome before discussing this in earnest."

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