Hyundai Motor and Kia Achieve Highest Q3 Sales Despite Recall Setbacks... "Record Performance Expected in Q4" (Comprehensive 2)

Kia 23.16 Trillion KRW, Hyundai Motor 37.70 Trillion KRW
Both Companies' Sales Increase Over 30% Year-on-Year

[Asia Economy Reporter Kiho Sung] Hyundai Motor Company and Kia have achieved record quarterly sales, driven by eased supply constraints on automotive semiconductors and favorable exchange rate effects. Although operating profit declined in the third quarter due to one-time expenses, annual operating profit is expected to reach an all-time high. Hyundai and Kia expressed their determination to overcome increased uncertainties in the U.S. and European markets through the establishment of battery joint ventures and expansion of electric vehicle sales.

Kia announced on the 25th that its third-quarter sales this year reached 23.1616 trillion KRW, a 30.5% increase compared to the same period last year. Hyundai Motor reported on the previous day that its third-quarter sales rose 30.6% year-on-year to 37.7005 trillion KRW. Both companies saw sales increase by more than 30% compared to the previous year.

However, operating profits for both companies decreased. Hyundai Motor recorded an operating profit of 1.5518 trillion KRW, down 3.4% from the same period last year. Kia’s operating profit was 768.2 billion KRW, a 42.1% decline. This marks the first time since the fourth quarter of 2020 that Kia’s operating profit fell below the one trillion KRW mark.

This decline is due to the companies reflecting provisions for a recall of the 'Theta2 GDi' engine amounting to 2.9044 trillion KRW in their third-quarter results. On the 18th, Hyundai Motor Group decided to account for quality costs of 1.3602 trillion KRW for Hyundai Motor and 1.5442 trillion KRW for Kia. Excluding these one-time expenses, the combined third-quarter operating profit of both companies reached 5.2244 trillion KRW, marking a record high on a quarterly basis.

Strong performance despite one-time costs... "Expecting record results in Q4"

In this context, Hyundai Motor revised its 'annual performance guidance' announced earlier this year to reflect the changed internal and external business environment. First, the annual sales forecast was lowered from 4.32 million units to 4.01 million units, directly impacted by the prolonged Russia-Ukraine war and semiconductor shortages.

However, the increase in sales revenue combined with a favorable 'strong dollar' exchange rate led to an upward revision of the year-on-year sales growth rate from the previous 13-14% to 19-20%, a significant 6 percentage point increase. Nevertheless, due to increased external volatility, the total investment plan was slightly reduced by 300 billion KRW to 8.9 trillion KRW to secure cash.

Kia is also closely monitoring the unstable external environment, including intensified raw material price volatility due to international geopolitical tensions, high interest rates, and inflation-induced weakened consumer sentiment, while expecting visible performance improvements in the fourth quarter. Notably, the average KRW-USD exchange rate in Q3 was 1,338 KRW, a 15.6% increase year-on-year, which significantly contributed to sales expansion and profitability improvement.

[Image source=Yonhap News]

Both companies are forecasting record results in the fourth quarter. Ju Woo-jung, Vice President and Head of Finance at Kia, stated, "Considering production disruptions, backorders, low incentive levels, and exchange rate effects, I believe the fourth quarter of this year could show the best profitability performance."

Seo Kang-hyun, Vice President and Head of Planning and Finance at Hyundai Motor, also said, "(Despite the Q3 quality costs) due to profitability improvements, the annual results are expected to achieve record highs."

The challenge is next year... Overcoming difficulties in the U.S. and European markets

However, the challenge lies in next year. The situation in the U.S. and European markets, key export destinations for Hyundai Motor Group, is not favorable. In particular, with the full implementation of the Inflation Reduction Act (IRA) in the U.S., Hyundai Motor Group, which produces electric vehicles in Korea, is expected to face difficulties.

Regarding this, the head of the division stated, "We are reviewing various localization strategies, including the establishment of a joint venture for battery components." Ju added, "In addition to completing the Georgia plant to respond to the U.S. Inflation Reduction Act, we are also exploring multiple ways to utilize existing U.S. plants."

In Europe, the prolonged Russia-Ukraine war has led to market contraction and soaring energy costs, increasing difficulties.

Hyundai Motor’s strategy is to turn this into an opportunity to expand its market share in Europe. They are particularly placing hopes on eco-friendly vehicles such as the Ioniq 6. Joo Ja-yong, Executive Director of IR at Hyundai Motor, said, "We will expand the sales regions of the Ioniq 6 to Europe by the end of this year and to North America early next year. We plan to increase total electric vehicle sales next year by 40% compared to this year (220,000 units), with the Ioniq 6 targeting sales of over 60,000 units, accounting for about 20% of electric vehicle sales."

Ju added, "Due to increased local market volatility caused by Russia’s invasion of Ukraine, the market itself could shut down next year. While we might remain only in a service form instead of supply, strictly speaking, these are not our assets, and we are not involved in how they are being reviewed."

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