Hyundai Motor Group's 'Getting Full Price' Strategy Worked During Tesla Bargain Sale

Tesla's Third Price Cut in the US This Year
Hyundai Motor and Kia Stick to Full-Price Policy
Hyundai Motor and Kia Expect Record Q1 Earnings
Tesla's Q1 Operating Profit Consensus Down 15% Year-on-Year

The most notable automakers in the global automotive market in the first quarter of this year were Hyundai Motor Group and Tesla. Both companies are rapidly increasing their global market share, but their profitability contrasts sharply. Tesla succeeded in raising its market share through aggressive price cuts but sacrificed profitability. On the other hand, Hyundai Motor Group maintained a 'getting the right price' policy by appropriately balancing its portfolio of electric vehicles and internal combustion engine vehicles. As a result, it is evaluated to have captured both market share and profitability.

According to Bloomberg and FnGuide on the 10th, the consensus operating profit for Hyundai Motor and Kia combined in the first quarter of this year was estimated at 4.8293 trillion KRW, a 36% increase compared to the same period last year. If the consensus holds, Hyundai Motor and Kia are expected to record their highest-ever first-quarter performance.

In contrast, Tesla's consensus operating profit for the first quarter of this year was estimated at $3.07 billion (approximately 4.0493 trillion KRW), a 15% decrease from the previous year. This marks the first time since the second quarter of 2020 that Tesla's quarterly operating profit has declined year-over-year. For over two years, Tesla amazed the industry by recording triple-digit or double-digit operating profit growth rates each quarter.

However, the drastic price reduction policy initiated earlier this year turned out to be detrimental to profitability. Since January, Tesla has cut prices by up to 20% on key models such as the Model 3 and Model Y in the U.S. and China.

The effect of the price cuts was clear. Tesla's global sales in the first quarter reached 422,875 units, setting a new record. However, experts focus more on the slowdown in Tesla's sales growth than on the record sales. Tesla's global sales growth rate in the first quarter was 36%. Compared to the growth rate that once exceeded 80%, this is the lowest level in the past four years.

There is no excuse of supply shortage. Tesla's global production in the first quarter was 440,000 units, exceeding sales (420,000 units). Despite sufficient production, sales slowed due to weak demand. On the 7th (local time), Tesla cut prices for the third time this year in the U.S. The targeted models were the flagship lineup, Model S and Model X. The industry believes Tesla lowered prices further to maintain a sales growth rate of over 50%. Reckless price cuts to expand market share ultimately boomerang back as poor profitability.

Tesla Model 3

Hyundai Ioniq 6

Hyundai Motor Group sold 1,788,016 units globally in the first quarter, a 12% increase from the previous year. By appropriately adjusting the sales proportions of electric vehicles, hybrids, and internal combustion engine vehicles, it succeeded in defending profitability. Generally, electric vehicles, which have not yet achieved 'economies of scale,' tend to have lower profitability, while internal combustion engine vehicles are relatively more profitable. The focus on 'high-end' models or specifications compared to competitors also contributed.

Hyundai Motor Group responded swiftly to the U.S. Inflation Reduction Act (IRA), which provides subsidies only for locally produced electric vehicles. It increased the proportion of 'fleet' sales, which involve bulk sales to corporations, rental car companies, and used car dealers, and 'lease' sales, which involve long-term vehicle rentals. Using fleets and leases allows electric vehicle subsidies even under the IRA. The plan for local electric vehicle production was also accelerated. Hyundai Motor Group is building an electric vehicle-only factory in Georgia, U.S., and plans to advance the factory's operation target from the end of next year to mid-next year.

Furthermore, Hyundai Motor Group drew a clear line by stating it would not participate in the price-cutting competition initiated by Tesla. A Kia IR official said at Investor Day, "We cannot tell whether Tesla's price cuts are for market share expansion or part of a sustainable energy strategy," adding, "We will follow our own path to increase profitability by minimizing incentives and high-cost channels."

Meanwhile, Hyundai Motor Group and Tesla will start new competition in the U.S. electric vehicle market as the detailed guidelines of the IRA take effect from the 18th. Amid a recent slowdown in market share expansion by U.S. and Japanese brands, Hyundai Motor Group and Tesla have seized the opportunity.

According to data from automotive market research firm MarkLines, Hyundai Motor Group's market share in the U.S. in March was 11.1%, up 1.2 percentage points from the same period last year. Tesla's share rose 0.5 percentage points to 4.3%. Meanwhile, the combined market share of the three Japanese automakers (Toyota, Honda, Nissan) fell 1.9 percentage points to 28.8%. The market share of the three U.S. automakers (GM, Ford, Stellantis) also declined by 1.2 percentage points to 39.4%.

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