Improving Quality Costs and Overhauling Structure... Hyundai Kia Motors Gears Up for Record Performance Next Year

[Asia Economy Reporter Woo Su-yeon] Hyundai Kia Motors succeeded in defending its third-quarter performance this year despite quality costs of 3.4 trillion won. Although a deterioration in performance was inevitable due to the large-scale quality costs, it is evaluated that the company laid the foundation for a full-scale profitability improvement next year through fundamental structural improvements.

According to Hyundai Kia Motors on the 27th, Hyundai Motor recorded an operating loss of 313.8 billion won in the third quarter of this year, turning to a deficit compared to the previous year. Sales increased by 2.3% to 27.5758 trillion won. Kia Motors maintained a profit with an operating profit of 195.3 billion won, and sales increased by 8.2% to 16.3218 trillion won.

This performance far exceeded the consensus of the securities industry, which had expected a large operating loss. Initially, Hyundai Kia Motors announced the reflection of a large-scale recall cost provision, forecasting operating losses of around 800 billion won for Hyundai Motor and 500 billion won for Kia Motors in the third quarter.

However, the actual results were different from expectations. The performance was so good that if the large-scale recall costs had not been reflected, an earnings surprise would have been recorded in the third quarter of this year. Excluding recall costs, Hyundai Motor's operating profit was 1.8 trillion won, and Kia Motors' was 1.2 trillion won, reaching a level similar to 2015 when Hyundai Kia Motors' global sales peaked.

Recouping 3.4 Trillion Won Quality Costs through Structural Improvement

Achieving such results despite unfavorable exchange rates and the resurgence of COVID-19 was possible because of fundamental structural improvements.

First, the product mix improved as the sales proportion of high value-added vehicles such as sport utility vehicles (SUVs) and the premium brand Genesis increased. In this quarter, the combined proportion of SUVs and Genesis in Hyundai Motor's sales was 48.7%, up 5.1 percentage points from the same period last year. Kia Motors also saw the proportion of recreational vehicles (RVs) exceed half at 57.8%.

Not only by vehicle type but also in trim and option selections, sales of higher trims increased. As more buyers chose advanced safety technologies and convenience options, the average selling price (ASP) rose accordingly. For the new Kia K5, the selection rate of the advanced driver assistance system (ADAS) 'Drive Wise' increased from 23% in the previous model to 71% in the latest model, and Kia Motors' domestic ASP rose from 24.9 million won per vehicle last year to 27.7 million won in the third quarter of this year.

In overseas markets, dealer incentives stabilized downward, increasing margin rates. Lower dealer incentives indicate that the vehicles are recognized for their product competitiveness. Joo Woo-jung, Executive Vice President of Kia Motors' Finance Headquarters, said, "There is a trend of decreasing promotional expenses evenly across all overseas regions," adding, "We see this as a structural change resulting from long-term efforts such as design and product innovation."

Expectations for Next Year’s Quarterly Operating Profit to Level Up to 2 Trillion Won for Hyundai Motor and 1 Trillion Won for Kia Motors

Rendering images of Hyundai Motor Company's electric vehicle exclusive brand Ioniq lineup (from left: Ioniq 6, Ioniq 7, Ioniq 5) / Photo by Hyundai Motor Company

The industry evaluates that Hyundai Kia Motors, having succeeded in structural improvement, has removed quality cost risks for 17 years and has entered a full-scale upward trajectory in performance. Next year, with the launch of the Hyundai Ioniq 5 and Kia CV equipped with dedicated electric vehicle platforms, the electric vehicle momentum is expected to join in full force.

Expectations for record-high performance next year are growing due to various favorable factors in overseas markets, including sales recovery in emerging markets where Hyundai Kia Motors leads market share such as India, Vietnam, and Russia, the visibility of commercial hydrogen vehicle exports to Europe and the United States, and the launch of the Genesis brand in China.

However, potential risks remain, such as electric vehicle quality costs exemplified by the recent global recall of the Kona EV and the slow recovery in the Chinese market. On this day, Hyundai Motor announced plans to enhance competitiveness in the Chinese market along with its third-quarter performance. From the second half of this year to the end of next year, it plans to launch seven new models and China-exclusive electric vehicles and improve profitability through dealer network restructuring and expansion of online sales.

Lee Kyung-tae, Managing Director of Hyundai Motor's China Support Team, said, "We will select excellent dealers through restructuring and strengthen operational training," adding, "We will prepare a turning point for sales turnaround in China with new model launches after the fourth quarter."

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