Kia Faces Short-Term Cost Pressure... "Banking on Increased Sales in the Second Half" [Click eStock]

Kia New Telluride Lineup

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Kia posted somewhat sluggish results in the first quarter of this year. This was due to increased costs, including U.S. tariffs, overseas dealer incentives, and various warranty provisions. However, there is an outlook that Kia will stabilize its performance and further increase its market share, based on strong sales of eco-friendly vehicles.

On April 28, BNK Investment & Securities maintained its target price for Kia at 195,000 won and its 'Buy' investment rating, citing these factors. The previous day's closing price was mm won.

In the first quarter of this year, Kia reported consolidated sales of 29.502 trillion won and operating profit of 2.205 trillion won. Compared to the same period last year, sales increased by 5.3%, but operating profit decreased by 26.7%. While these results were generally in line with market consensus, the company's performance was still considered somewhat weak.

First, higher average selling prices (ASP) and favorable exchange rates contributed to the increase in sales. However, surging costs, including U.S. tariffs (755 billion won), increased overseas incentives (215 billion won), and warranty provision revaluation losses due to a sharp rise in the year-end won-dollar exchange rate (75 billion won), led to a decline in operating profit. The operating margin was 7.5%, down 1.0 percentage point from the same period last year. However, excluding the impact of tariffs, the operating margin would have been around 10.0%.

Despite this, sales of eco-friendly vehicles increased, and overall market share also rose. Eco-friendly vehicle sales reached 232,000 units, up 33.1% year-on-year. Their share of total vehicle sales also grew to 29.7%. In particular, strong sales of hybrid vehicles (HEVs) such as the Telluride, Carnival, and Sportage in markets like the U.S. made significant contributions. This enabled Kia to achieve a global market share of over 4% for the first time.

The amount of warranty provisions accumulated in the first quarter was approximately 1.2 trillion won, an increase of 440 billion won compared to the same period last year. This is attributed not only to exchange rate effects but also to an increase in per-unit provisions due to higher sales of electric vehicles (EVs) (rising EV parts prices and changes in the first registration year of new vehicles).

From the second quarter, Kia is expected to further expand its market dominance. The company plans to launch the Seltos HEV in North America and ramp up sales of the Telluride. In Europe, Kia will strengthen its market position by expanding its electric vehicle lineup, including the EV2, EV4, and EV5.

Although there are concerns about potential sales disruptions due to rising prices of raw materials such as aluminum and geopolitical risks in Asia and the Middle East, it is expected that Kia will be able to fully offset these issues by increasing volumes in emerging markets such as Latin America and India, as well as in advanced markets.

Lee Sanghyun, a researcher at BNK Investment & Securities, stated, "Kia's global sales growth, which is not concentrated in any particular region, a conservative pricing policy that enables the company to fully benefit from exchange rate effects, and steady progress in mid- to long-term mobility strategies such as PBV (PV5), robotics, and software-defined vehicles (SDV), are attractive factors. However, U.S. tariffs, aggressive low-priced EV competition from Chinese companies, and raw material price volatility due to prolonged wars are risk factors. It will be important to watch whether Kia can maintain profitability in the future through its market dominance in Europe and new eco-friendly vehicles."

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