KB Securities evaluated on the 28th that the decision by the Donald Trump administration to impose a 25% tariff on all imported cars would negatively impact profits for Hyundai Motor and Kia. However, it expects that an increase in production at the Hyundai Motor Group Meta Plant America (HMGMA) in Georgia could offset the tariff burden.
Research Institute Kang Seong-jin forecasted that the annual operating profit of Hyundai Motor and Kia would decrease by 3.4 trillion won and 2.3 trillion won, respectively, due to the 25% tariff. Kang noted that while the damage to Hyundai Motor Group from the tariff is inevitable, there may be ways to offset the burden.
First, the likelihood of a rise in automobile prices in the United States has increased. This is because it is difficult to rapidly increase local production when half of the cars sold in the U.S. are imported. The market research firm CAR predicts that the 25% tariff will raise U.S. automobile prices by $2,000 to $7,000 per vehicle and that annual sales will decrease by 1 million units (6.3%). Prices for used cars could also jump.
Kang noted, "The increase in sales revenue due to rising automobile prices in the U.S. will partially offset Hyundai Motor Group's tariff burden," adding, "The rise in used car prices will increase the residual value of leased vehicles, thereby improving Hyundai Motor's financial sector profits."
Kang also explained that this could be an opportunity for Hyundai Motor Group to quickly raise the operating rate of HMGMA. Kang simulated the changes in the operating profits of Hyundai Motor and Kia based on assumptions about sales volume, average sales price, the extent of tariff pass-through to consumers, and the manufacturing ratio of Hyundai and Kia.
According to simulation results, if HMGMA produces 100,000 units annually, the decrease in annual operating profit for Hyundai Motor and Kia will be reduced to 2.5 trillion won and 1.7 trillion won, respectively. If the operating rate of HMGMA is increased to maximum production capacity (CAPA—300,000 units), the annual operating profit for Hyundai Motor and Kia will only decrease by 1 trillion won and 900 billion won.
With plans to expand HMGMA's production capacity to 500,000 units annually, achieving such production levels could increase Hyundai Motor's operating profit by about 500 billion won compared to scenarios without the tariff. Kia is also expected to see little difference in operating profit after the tariff imposition.
Kang stated, "A blanket tariff may be preferable," noting, "Even without the operation of HMGMA, if more than 71% of the tariff is passed to U.S. consumers, both Hyundai Motor and Kia can offset the damage."