Cars "In High Demand" with "Market Share Expansion Strategy"... Top Pick is 'Kia'

[Asia Economy Reporter Lee Seon-ae] Investment advice has been raised to adopt a strategy of increasing the weighting in the automotive sector.

According to Shinhan Financial Investment on the 4th, domestic car sales in August showed a supply situation that could not keep up with demand, while overseas sales faced inventory depletion, resulting in a situation where they wanted to sell but could not.

Domestic sales volume in August (excluding imported cars) recorded 106,000 units (-5.0% YoY), continuing a decline for six consecutive months. The spread of the Delta variant in Southeast Asia tightened the supply conditions for automotive semiconductors. Actual vehicle demand remains solid, with backorders accumulating and inventory being depleted, making normal operations difficult. Hyundai Motor and Kia’s combined domestic market share remained high at 86.6% (-0.9%p), but sales volume by model fluctuated significantly depending on vehicle supply conditions. For Hyundai Motor, production disruptions were more severe for relatively high-priced models (Grandeur, Genesis). Electric vehicle production saw fewer disruptions compared to internal combustion engines for both companies due to the normalization of E-GMP model production.

Based on overseas shipment volume, Hyundai Motor recorded 171,000 units (-13.4% YoY), and Kia recorded 97,000 units (+5.3%). In advanced countries, shipment volumes decreased despite solid retail sales, reflecting the impact of semiconductor shortages (= supply disruptions). Demand in emerging countries such as India and Brazil is recovering, but demand remains weak in some countries like Russia and China.

The situation in the United States was positive for both companies. Retail sales declines were limited, and incentive reductions were larger compared to competitors. This environment allows for maintaining high profitability. On the other hand, in Europe, where recent retail demand has slightly slowed, performance improvement factors are expected to be limited. Instead, they are focusing on sales strategies centered on eco-friendly vehicles (BEV+PHEV) to avoid fuel efficiency regulations and establish eco-friendly vehicle brands. The share of eco-friendly vehicles in European sales was 24.9% for Hyundai Motor and 22.9% for Kia. In the second half of the year, Kia is expected to see additional growth due to the export effect of the EV6.

Jung Yong-jin, Senior Researcher at Shinhan Financial Investment, emphasized, "As automotive production disruptions due to external variables are prolonged longer than expected, the factors improving performance (cost reduction, low-margin inventory depletion, flexible production system centered on high-profit models) are outweighed by factors worsening performance (increased fixed costs due to rigid production, operational disruptions due to inventory depletion)." He added, "Kia, which maintains solid sales of high-margin models, has higher earnings visibility and can relatively escape market concerns." The investment opinion on automobiles remains 'Overweight,' and Kia was recommended as the top pick.

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