Peak reached or new record ahead... Key points to watch in Hyundai Motor's earnings

Hyundai Motor, Q3 Operating Profit Forecast 3.47 Trillion KRW
Performance Levels Up After Peaking in Q2 'Taking a Breather'
Hyundai Motor·Kia Expected to Join 10 Trillion KRW Operating Profit Club This Year
Expansion of Subsidies in Various Countries and UAW Strike... Positive Factors Accumulate in Second Half

As global demand for electric vehicles contracts, concerns about Hyundai Motor and Kia's second-half performance are emerging. Despite achieving record-breaking results for three consecutive quarters, it is argued that Hyundai Motor and Kia will find it difficult to set new records in the second half of this year. However, the industry interprets this not as a 'peak-out' but rather as a 'breather' for a full-scale performance level-up.

On the 4th, FnGuide estimated Hyundai Motor's sales consensus for the third quarter of this year at 39.5022 trillion won, a 4.7% increase compared to the previous year. The operating profit consensus for the same period is estimated at 3.4787 trillion won, a 124% increase.

These projections are lower than the record-breaking results of the second quarter (sales of 42 trillion won, operating profit of 4.2 trillion won). The reason for the slowdown in third-quarter performance compared to the second quarter is largely due to decreased electric vehicle demand in July and August and a contraction in domestic sales. Some have raised concerns that this might indicate entry into a 'peak-out,' where performance hits a peak and then trends downward.

However, compared to last year's quarterly average operating profit (2.4 trillion won), the third-quarter operating profit forecast for this year has increased by more than 1 trillion won. The fourth-quarter forecast is around 3.4 trillion won. Annually, it is expected to reach 14.7 trillion won, a 50% increase from last year.

Kia's third-quarter sales and operating profit are projected to increase by 7.7% and 263%, respectively, to 24.9441 trillion won and 2.7895 trillion won. Annually, sales are expected to rise 16% year-on-year to 100.6 trillion won, and operating profit is forecast to increase 63% to 11.8 trillion won. This means that from this year, Hyundai Motor and Kia will simultaneously enter a full-scale '10 trillion won operating profit era.'

Background Behind Second-Half Performance Concerns

The main reason for concerns about Hyundai Motor and Kia's second-half 'peak-out' performance is the global slowdown in electric vehicle demand. Major countries, including South Korea, have reduced electric vehicle subsidies, and economic downturns and high interest rates have increased consumers' purchasing burdens.

In particular, the domestic market, affected by the end of the individual consumption tax reduction from July, has shown a clear demand contraction. According to data from Kaizyu Data Research Institute, new car registrations in South Korea decreased from 164,000 units in June to 145,000 units in July and 124,000 units in August. Compared to the same period last year, there was a 21% growth rate until June, but a decline of 4% in July and 7% in August.

Domestic new electric vehicle registrations also turned to a year-on-year decline for two consecutive months starting in July. Until June, registrations grew 18% year-on-year to about 15,000 units, but dropped to 14,000 units (-6%) in July and 10,000 units (-32%) in August.

Signs of slowing electric vehicle sales are also detected in the global market. In the United States, as inventory accumulates mainly for electric vehicles, incentives (promotion costs) given to dealers nearly doubled in September this year compared to the previous year’s new car average. In China, when July sales declined year-on-year, the government reintroduced vehicle purchase promotion policies.

Expansion of Subsidies in Various Countries and UAW Strike... Positive Factors Accumulate

Experts believe that the peak-out logic, which some worry about, will weaken over time. Although demand slowdown is occurring mainly for electric vehicles, the sales trend has not completely turned downward. Moreover, governments worldwide, sensing the recent demand slowdown, are rushing to introduce policies to boost domestic electric vehicle sales.

It is also noteworthy that current domestic waiting demand is concentrated on major HEV models such as the Santa Fe and Grandeur Hybrid (HEV). Hybrids are more profitable than electric vehicles and positively impact performance. Hyundai Motor's flagship sport utility vehicle (SUV), the Santa Fe HEV model, will begin full-scale deliveries from October.

United Auto Workers (UAW) members protesting at the GM plant located in Delta Township, Lansing, USA
[Photo by Yonhap News]

The intensifying strike by the United Auto Workers (UAW) in the United States is a positive factor for Hyundai Motor and Kia. On the 2nd (local time), Ford and GM announced that they had laid off about 500 employees as the strike entered its 18th day. If the strike reduces inventory levels of American brands and delays vehicle deliveries, Hyundai Motor and Kia can expect a windfall benefit.

Despite the implementation of the Inflation Reduction Act (IRA), Hyundai Motor and Kia have steadily increased their market share in the U.S. According to the IRA, electric vehicles produced domestically in South Korea do not qualify for a tax credit of up to $7,500 (about 10 million won) in the U.S. To respond, Hyundai Motor and Kia have increased exports of eco-friendly vehicles mainly for commercial use, such as rentals and leases, which are not subject to the IRA.

From January to September this year, Kia set a new record by surpassing cumulative sales of 600,000 units in the U.S. In the third quarter alone, it sold more than 210,000 units, achieving record-breaking results for two consecutive quarters. Hyundai Motor also sold 200,000 units in the third quarter, a 9% increase year-on-year. In September alone, it sold about 69,000 units, a 16% increase year-on-year, setting a new record for the month.

Lee Jae-il, a researcher at Eugene Investment & Securities, said, "Because competitors' electric vehicle production is not smooth, Hyundai Motor and Kia's U.S. electric vehicle market share is expected to rebound in the fourth quarter. The dedicated electric vehicle factory being built in Georgia, U.S., will start operations in the second half of next year, and low-cost electric vehicle production is planned in India, so the electric vehicle crisis theory for Hyundai Motor Group will gradually lose strength."

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