Hyundai Motor Group is grappling with difficulties at home and abroad. While Japan, competing in the U.S. market, benefits from a tariff reduction, Hyundai's tariff reduction is delayed. The Georgia plant being built in collaboration with LG Energy Solution is facing inevitable setbacks due to illegal immigrant crackdowns, and domestically, negotiations for wages and collective agreements are behind schedule, leading to a strike for the first time in seven years.
According to the completed car industry on the 8th, the U.S. plans to reduce the tariff on Japanese cars from 27.5% to 15% as early as this week. Donald Trump, the U.S. president, signed an executive order for the tariff reduction 45 days after the U.S.-Japan trade agreement on July 22, allowing Japanese companies to get a head start in reducing tariff burdens. South Korea also agreed at the end of July to lower the tariff from 25% to 15%, but still applies the 25% tariff due to delays in administrative procedures.
The two countries, South Korea and the U.S., are still in the practical negotiation stage, making it difficult to know when the tariff will drop to 15%. If the tariff reduction is delayed, the Hyundai Motor Group will be at a disadvantage competing against Japanese cars in the U.S. Hyundai will have to bear a tariff that is 10 percentage points higher than Japanese firms like Toyota and Honda for the time being, which will make its cars more expensive than the Japanese ones once reflected in their prices.
Hyundai Motor Group is not passing the 25% tariff onto consumer prices. In the second quarter, it is estimated that the imposition of tariffs decreased the operating profit by about 1.6 trillion won. If the 15% tariff is applied and not passed on to consumer prices, the monthly loss would decrease to about 300 billion won, but with the delay in tariff reduction, the profit decline in the third quarter is expected to exceed 1 trillion won.
The U.S. battery factory is also expected to face setbacks. On the 4th (local time), the U.S. Immigration and Customs Enforcement (ICE) and the Department of Homeland Security (HSI) raided the construction site of the Hyundai and LG Energy Solution joint battery plant (HL-GA) and detained hundreds of Korean employees staying on Electronic System for Travel Authorization (ESTA) and B-1 (short-term business) visas.
Hyundai is also building a joint plant with SK On, targeting to start operations in the first half of next year, but reviewing existing departure practices due to visa issues and the process of supplementing alternative personnel is expected to increase both costs and time. Hyundai has decided to minimize employee business trips in the meantime and to postpone trips unless absolutely necessary.
If the battery plant is hit, it will disrupt the Hyundai Motor Group's strategy to expand local production centered on electric vehicles. Hyundai had planned to expand the production capacity of its Meta Plant America (HMGMA) near the battery plant from 300,000 vehicles to 500,000 vehicles and to increase its current U.S. production capacity from 700,000 vehicles to 1.2 million vehicles to alleviate tariff burdens.
In Korea, negotiations with the labor union for wage and collective agreements have reached a deadlock. The Hyundai union has gone on partial strike, demanding not only wage increases but also an extension of retirement age and a 4.5-day work week. There are predictions that if a breakthrough is not made in negotiations this week, the strike will become protracted. The Kia union continues negotiations, but differences remain unresolved.
Various variables overlapping simultaneously are attracting attention to the changes in Hyundai Motor Group's major scheduled events and response plans. Chung Eui-sun, the chairman of Hyundai Motor Group, is reported to meet Mary Barra, chairperson of General Motors (GM), at the 'Automotive News Congress' held in Detroit, U.S., on the 11th (local time). Then on the 18th, the first overseas Chief Executive Officer (CEO) Investor Day event is scheduled to take place in New York.