"Strengthening Raw Material Management"... Why Hyundai Motor and Kia Tighten Controls Despite Record Profits

"Establishment of Dedicated Raw Material Team and System Construction"
Announced at Earnings Conference Call
Sales Declined in Q1 but Revenue and Profit at Record High
Prepared for Potential Negative Factors from Q2 Onwards

Hyundai Motor Company and Kia Yangjae Headquarters Building

[Asia Economy Reporter Choi Dae-yeol] Hyundai Motor and Kia are making all-out efforts to strengthen the management of raw materials necessary for finished vehicle production. They plan to organically adjust volumes between global factories while tightening the reins by postponing new investments and new car launches. Despite recording the highest-ever performance in the first quarter of this year amid ongoing internal and external crises since last year, they believe the upcoming challenges will not be easy to overcome.

According to the company's explanation on the 26th, Hyundai Motor has established a dedicated organization to strategically manage raw materials and built a system that automatically calculates profit and loss impacts based on market fluctuations. This task, usually handled independently by suppliers rather than finished car makers, is now directly overseen to enable more precise responses. In the purchasing process of goods and various materials needed for finished vehicle production, they also plan to enhance expertise by collaborating with external professional institutions and related companies. Although their purchasing and cost reduction areas are already considered top-level globally, they intend to further refine these capabilities.

Regarding batteries, which have a large cost ratio, they are increasing the volume of raw materials pre-purchased from battery manufacturers and are even considering a plan to directly purchase raw materials in the mid to long term. The demand for batteries has significantly increased as the production and sales of eco-friendly vehicles such as electric and hybrid cars have grown, while prices of key battery materials like lithium, nickel, and cobalt have recently surged.

Seo Kang-hyun, Head of Hyundai Motor’s Finance Division, said during the first-quarter earnings conference call yesterday, "The ongoing semiconductor supply issues are showing a slow recovery, and the recent rise in raw material prices is also a short-term burden," adding, "We have prepared various countermeasures against raw material price increases and global supply shortages."

Hyundai Motor's factory in Russia. Production was halted due to local logistics disruptions following the invasion of Ukraine.

Hyundai Motor and Kia received decent results despite adverse conditions around the first quarter of this year. According to the earnings announced yesterday, both companies saw a slight decrease in sales volume. Based on quarterly operating profit, Hyundai Motor recorded its best performance in eight years, and Kia achieved its highest-ever record. They overcame difficulties such as ongoing parts supply shortages since the outbreak of COVID-19, production and logistics disruptions due to Russia's invasion, and sharp rises in major raw material prices. The sustained high exchange rates and prolonged supplier-favorable market conditions caused by delivery backlogs also worked as favorable factors for Hyundai Motor and Kia.

Nevertheless, they are tightening their belts because they foresee that the situation ahead will not be easy. Raw material prices are typically reflected in production costs over three months to as long as a year. If vehicles produced in the first quarter of this year were made using materials secured before the recent raw material price surge, vehicles to be produced and sold in the future will have to bear the increased costs fully.

The parts shortage symbolized by automotive semiconductors is also likely to gradually improve in the second half of this year. If production and sales return to normal levels as before, various marketing costs will inevitably increase during the sales process. Joo Woo-jung, Head of Kia’s Finance Division, said, "Although raw material prices have fallen compared to their peak, they are still higher than when we planned at the beginning of the year, so the burden of material costs will increase further after the second quarter," adding, "To offset the rise in material costs, we are implementing reasonable price increases across all market regions."

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