Hyundai Motor and Kia Operating Margin to Drop 1.8%p Due to U.S. Tariffs... Limited Impact on Credit Ratings

Moody's and Korea Ratings Joint Webinar:
"Trump Tariffs" to Have Limited Impact on Hyundai Motor and Kia Credit Ratings
Parts Suppliers Face Greater Risks from 25% Tariff
Tariff Effects Also Discussed for Semiconductors, Secondary Batteries, and Steel

A credit rating agency analysis has indicated that the 25% tariff on imported cars imposed by U.S. President Donald Trump could reduce the operating margin of Hyundai Motor and Kia by 1.8 percentage points this year. However, despite the impact of these tariffs, the effect on the companies' credit ratings is expected to be limited. The so-called "Trump tariffs" on imported cars are expected to have a more negative impact on parts suppliers.

On the afternoon of April 24, Sung Hojae, Head of Corporate Evaluation at Korea Ratings, stated at a joint seminar hosted by Moody's and Korea Ratings, "Assuming a conservative scenario in which the 25% U.S. tariff begins to actually affect Hyundai Motor and Kia from the second quarter, the combined operating margin of the two companies would be 1.8 percentage points lower."

Accordingly, based on the automotive segment, the combined operating profit of the two companies is projected to decrease by about KRW 5 trillion this year due to the tariffs, compared to KRW 24.1 trillion last year. Last year, Hyundai Motor Group sold a total of 1.71 million finished vehicles in the United States.

Sung pointed out, "The proportion of North American sales for Hyundai Motor and Kia has increased from 33% in 2018 to 44% in 2024," and added, "About two-thirds, or 67%, of their sales volume is exposed to tariff risk." He also noted that, in the current U.S. market, most finished car manufacturers, including Toyota, rely on imports for 30% to 50% of their local sales volumes, making price increases within the United States inevitable due to the 25% tariff. This is expected to not only dampen demand for finished vehicles in the U.S. but also become a factor in the overall performance decline across the industry.

However, factors such as a high exchange rate and increased sales of high value-added vehicles were cited as partially offsetting the negative effects of the tariffs. Sung explained, "Thanks to an improved sales mix and the impact of a high exchange rate, Hyundai Motor and Kia are still expected to maintain solid performance," and assessed that their ability to respond will be further enhanced once the recently announced expansion of Hyundai Motor Group's Metaplant is completed. In particular, from a credit perspective, he stated, "The impact on credit ratings is also limited, based on their strong fundamentals compared to competitors."

On the other hand, the Trump tariffs on imported cars are expected to be only a "cold" for finished car manufacturers but a "flu" for parts suppliers, causing much more severe damage. Sung pointed out, "Parts suppliers lack buffers to withstand external shocks, and if finished car manufacturers demand shared pain, the impact on their performance will be even greater," adding, "They also lack the financial capacity to relocate production to the United States." He continued, "They are expected to respond by adjusting the utilization rates of existing production facilities and export destinations," and diagnosed that the possibility of credit rating downgrades is greater for parts suppliers than for finished car manufacturers.

At the joint seminar held under the theme "Realized Trump Tariff Policy: Impact on the Global Economy and Major Domestic and International Industries," export industries such as semiconductors, secondary batteries, and steel were also discussed in addition to automobiles. Won Jonghyun, Managing Director, stated, "If semiconductor tariffs are prolonged, there is a risk of structural deterioration in price competitiveness," but evaluated that "the relative decline in price competitiveness among companies will be small, so the impact on credit ratings will be limited." He also pointed out that the accelerated growth of Chinese memory companies, as a backlash against U.S. checks on China, could be a potential risk for domestic companies.

For the steel industry, which is already under the practical influence of tariffs, it was diagnosed that a deterioration in competitive conditions is inevitable. Ahn Heejun, Managing Director, said, "Companies specializing in steel pipes with a high dependence on exports to the United States are particularly exposed to risk," and pointed out, "If response is insufficient, as exports are concentrated in high-profit energy steel pipes, profitability will be further weakened."

Regarding secondary batteries, Sung commented, "Since a production base has already been established in the United States, the direct impact is not significant," but added, "Given that their fundamentals have already weakened, it is necessary to monitor their ability to respond and control financial burdens." He also warned that, in addition to the impact of tariffs, if President Trump's rollback of eco-friendly policies materializes, the pressure for credit rating downgrades on secondary battery companies will increase.

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