Record-Breaking Performance, But... Why Are Hyundai Motor Shares Undervalued?

Editor's Note[Hyundai Motor, Over the Mobility] is a series that summarizes the secrets of innovation that enabled Hyundai Motor Group to rise to third place globally. Historically, the country leading the automotive industry has dominated the global economic hegemony. As the crown jewel of manufacturing, the automotive industry exerts comprehensive influence in terms of technological advancement, exports, and employment. In the past, Hyundai Motor was a fast follower, but now it has emerged as a first mover leading the industry. We deliver the past, present, and future of Hyundai Motor as experienced on the global reporting scene. After the 40th installment, this series will be published as a book.

In February 2025, Hyundai Motor India was newly included as a component of the Morgan Stanley Capital International (MSCI) Global Standard Index. The MSCI Index is considered the most influential stock index in the world. Being included in this index not only increases visibility in the global market, but also attracts large-scale capital inflows. This is because major global investors put stocks listed on this index on the table first when discussing investment portfolios.

MSCI Auto Index Includes BYD, Excludes Hyundai Motor

The inclusion of Hyundai Motor India this time was largely due to MSCI increasing India's weight at the expense of China. Among global emerging markets, MSCI focused on India and saw high growth potential for Hyundai Motor there. In October 2024, Hyundai Motor raised 4.5 trillion won through its IPO on the Indian stock market?the largest ever in India's stock market history in terms of IPO proceeds.

On the other hand, what about the stock price of Hyundai Motor's main shares listed on the Korean stock market? Even considering the so-called "Korea Discount" (undervaluation of Korean stocks) due to geopolitical, political, and governance factors pointed out by global financial markets, it is severely undervalued. Over the past three years (as of February 12, 2025), Tesla and Toyota's stock prices rose by 14% and 33%, respectively, while BYD soared by a staggering 52%. In contrast, Hyundai Motor's stock price rose only 8%, and Kia's by 16%.

Record-Breaking Performance, But... Why Are Hyundai Motor Shares Undervalued?

As of January 2025, let's look at the world's top 10 automotive stocks included in the MSCI ACWI Automobiles and Components Index. The order is Tesla, Toyota, General Motors (GM), Ferrari, Mercedes-Benz, Honda, Ford, BYD, Mahindra, and Stellantis. BYD has been on the list for three consecutive years since 2023, but Hyundai Motor and Kia are absent.

Securities Industry: "Doubts About Autonomous Driving and Software Competitiveness"

In terms of global sales in 2024, Hyundai Motor and Kia ranked third, and for the cumulative operating profit margin in Q1?Q3 of the same year, Kia was the overwhelming leader (12.4%), with Hyundai Motor (8.9%) also ahead of Tesla and BYD. However, in terms of market capitalization, Hyundai Motor and Kia lag far behind not only Tesla but also BYD. As of February 12, 2025, their combined market cap stands at 78.4496 trillion won. Tesla is 19.6 times, Toyota 5.3 times, and BYD 1.6 times larger than Hyundai Motor and Kia combined.

Let's compare the price-earnings ratio (PER) and price-to-book ratio (PBR), which are indicators of current stock valuation. PER is the market capitalization divided by net profit; a higher PER means the stock price is high relative to earnings. Generally, a PER above 10 is considered overvalued, but as of the end of December 2024, Hyundai Motor's PER was 4.37, and Kia's was 3.98. In the same period, Tesla's was 149.8, Toyota's 7.2, and BYD's 29.6.

The undervaluation is also clear when looking at PBR (market cap divided by net assets). Typically, a PBR above 1 is considered overvalued, and below 1 undervalued. Hyundai Motor's PBR is 0.54, and Kia's is 0.74, with neither surpassing 1. Among traditional automakers, only Toyota (1.02) exceeds a PBR of 1, while newcomers like Tesla (14.5) and BYD (6.4) are extremely overvalued compared to their asset values.

On paper, Tesla and BYD are receiving excessively high valuations relative to their current earnings or assets. While Toyota is fairly valued, Hyundai Motor and Kia are severely undervalued. Why, despite achieving record sales and operating profits over the past three years, have Hyundai Motor and Kia's stock prices remained stagnant? We spoke with four capital market experts familiar with Hyundai Motor Group (▲Ko Taebong, Head of Research at iM Securities (hereafter Ko) ▲Lim Eunyoung, Research Fellow at Samsung Securities (hereafter Lim) ▲CEO of a value investment fund management company (hereafter Value) ▲CEO of an activist fund management company (hereafter Activist)). The discussion was reconstructed in a roundtable format: Part 1 diagnoses the stock price, and Part 2 examines governance.

The Ioniq 5 autonomous robo-taxi developed by Motional, a US autonomous driving company affiliated with Hyundai Motor Group. Provided by Motional

Q. Hyundai Motor and Kia have achieved record-high sales and operating profits for three consecutive years. Why, then, have their stock prices not risen as expected?

▲Lim: The focus in the automotive industry has shifted from electric vehicles to autonomous driving. The AI boom that began two years ago with ChatGPT is now reaching a stage where we can experience it in the physical world. In the US, Waymo and Tesla, and in China, Baidu, Huawei, Xiaomi, Nio, and other leading EV companies are offering robotaxi services and showcasing autonomous driving technologies that minimize driver intervention. This year marks the point where autonomous driving services are becoming mainstream in various places. While Hyundai Motor and Kia's sales volume and financial performance remain solid, investors seem uneasy about their performance once autonomous driving services become widespread.

▲Ko: The greatest driving force behind Hyundai Motor's rise has been the so-called "Hyundai speed." Hyundai Motor would quickly establish factories and begin full-scale production as soon as it identified a promising market. In the past, Hyundai Motor's speed was unmatched. But look at China's BYD in recent years. Over the past four years, it has built 22 global plants. Now, Hyundai Motor is starting to lose in the speed race. China is ultra-fast. We have lost our "fast" edge. Also, Hyundai Motor's speed has so far been focused on mechanical engineering. They developed the dedicated EV platform "E-GMP" at remarkable speed and with high quality, and the same goes for hybrids. But now, in the AI era, the game has changed completely. We must face this reality.

Need to Consolidate New Technologies Scattered Across Affiliates

▲Value: From a stock price perspective, I think Hyundai Motor is in an ambiguous phase right now. Performance has been excellent in recent years, and new businesses like robotics and urban air mobility (UAM) are all promising, but since the core business has peaked, there are concerns it will start to decline from this year. There are doubts about whether they can continue to perform well in the future. Although they are pushing strong value-up policies to enhance shareholder value, stock prices are not rising because of these concerns.

Q. How significant are market concerns about Hyundai Motor and Kia's autonomous driving and software technologies?

▲Lim: Hyundai Motor and Kia's software technology is still lacking. They initially declared that all models would be software-defined vehicles (SDVs) by 2026, but later scaled back to apply it only to the "Pace Car," significantly narrowing the scope. Their autonomous driving "Level 3" (conditional automation) has yet to be commercialized. Of course, it's hard to say Tesla or Chinese EVs have achieved Level 3 either. However, in terms of driver intervention and object recognition on the road, they are far ahead of Hyundai Motor. If a "Chat-drive moment" (realization of all technologies needed for robotaxis) comes in autonomous driving in 2025, concerns over Hyundai Motor Group's software capabilities will likely intensify.

▲Ko: When smartphones emerged, all the old feature phone companies disappeared, even though they were still phones. Functionally, they were completely different. Smartphones revolutionized our lives by enabling internet and data transmission. The same will happen with EVs. For consumers, the difference between cars with and without autonomous driving is huge. Cars that cannot provide AI-based autonomous driving will inevitably be excluded from the market.

Q. What direction should Hyundai Motor and Kia's autonomous driving development take going forward?

▲Ko: The strategy should differ by region. In the US, where Tesla leads in autonomous driving technology, Hyundai Motor should partner with Tesla. Even if it means paying certain costs, they should actively adopt Tesla's system for the US market and extract as much technological benefit as possible in the process.

In contrast, Korea must develop its own autonomous driving technology. Globally, the origins of autonomous driving technology lie in the defense industry, with the aim of creating unmanned military vehicles such as autonomous armored vehicles and tanks. For national security, Korea urgently needs to develop specialized autonomous driving technology, and Hyundai Motor Group must take on that role. It makes no sense for us to be unable to control our own military equipment with our own software.

Hyundai Rotem's multipurpose unmanned vehicle is on display. Photo by Jinhyung Kang aymsdream@

Q. What issues must be resolved first for Hyundai Motor and Kia's stock prices to rise in earnest?

▲Lim: Hyundai Motor and Kia need to actively promote their component technologies so that the market recognizes them. Since 2020, Hyundai Motor Group has invested in many new businesses and technologies, such as battery design, smart factories, autonomous driving, and robotics. However, the stock market still lacks understanding of how Hyundai Motor Group's technology level compares to global competitors and how these component technologies will contribute to profitability.

▲Value: From an investor's portfolio perspective, even if you want to invest in future industry technologies like robotics or autonomous driving, the businesses are scattered across all affiliates. For example, if you want to invest in autonomous driving technology, it's unclear whether Hyundai Motor, Kia, or Hyundai Autoever is leading the effort. Even for Boston Dynamics, the robotics company, Hyundai Motor, Hyundai Mobis, and Hyundai Glovis all split the shares. So, even if you want to invest in new technologies, you don't know exactly which company to invest in.

Need to Focus Cash on New Businesses Rather Than Dividends

What Hyundai Motor desperately needs now is to focus on growth industries. It seems essential for Hyundai Motor, for the sake of Korea, to spin off new industries such as robotics, UAM, and autonomous driving into separate independent businesses, streamline their financial structure, and concentrate available cash on investments. If Hyundai Motor falls behind in autonomous driving while Samsung Electronics is struggling, there is no hope for the Korean economy. Of course, from a shareholder's perspective, increasing dividends is good. But business growth through investment should come first. The group must restructure its business by separating existing and new businesses and urgently increase cash investments in promising sectors.