Kia's operating profit in the first quarter of this year fell 27% from a year earlier. The reason was the payment to the United States of a high tariff totaling 755 billion won in the first quarter. Even so, strong sales led by eco-friendly vehicles drove revenue to a record 29.5019 trillion won. Kia expects raw material prices to rise and volumes in the Middle East to decline, but it plans to achieve its targets of 10.2 trillion won in operating profit and 3.35 million units in sales this year without a hitch through supply diversification and growth in all regions.
Kia said on the 24th that on a consolidation basis its first-quarter operating profit came to 2.2051 trillion won, down 26.7% from a year earlier. That missed the securities consensus (average forecast) of 2.2938 trillion won compiled by FnGuide. However, first-quarter revenue rose 5.3% to 29.5019 trillion won, the highest quarterly figure on record.
A Kia official said, "Not only was the impact of the U.S. tariff on imported finished cars fully reflected in the first quarter of this year, but profitability also deteriorated due to external factors such as increased incentives from intensified competition in the North American and European markets and higher provisions for sales warranties following a surge in the exchange rate at the end of the quarter," adding, "Even so, we maintained solid fundamentals, achieving record revenue through a better mix centered on high-profit models and a higher average selling price (ASP)."
◇ 94% of the operating profit decline was from tariff… sales of 780,000 units were the largest ever for a first quarter
The drop in operating profit was overwhelmingly due to the U.S. tariff. A Kia official said, "Compared with the first quarter of last year, operating profit fell by about 804 billion won, of which 755 billion won (93.9%) was the tariff impact," adding, "Excluding that, there is little difference from the first quarter of last year." Still, Kia is focusing on the improving trend in operating margin. It rose from the 5% range in the third quarter of last year and the 6% range in the fourth quarter to 7.5% in the first quarter of this year.
In addition, costs stemming from external variables—such as higher incentives due to intensified competition in the North American and European markets and higher foreign-currency sales warranty provisions following a surge in the won-dollar exchange rate at the end of the first quarter—also dragged down operating profit.
Still, the fact that first-quarter revenue hit a record high is a positive. This was thanks to growth in units sold. Wholesale sales in the first quarter totaled 779,741 units, up 0.9% from a year earlier, the largest ever for a first quarter. In Korea, sales rose 5.3% to 141,513 units, while overseas sales were similar to a year earlier at 638,228 units. Although sales in the Middle East and North Africa fell due to disruptions in local supply from the blockade of the Strait of Hormuz related to U.S.-Iran tensions, Kia said this was offset by other regions, including Europe (up 3.8%), India (up 11.6%), and Latin America (up 34.6%).
In particular, first-quarter sales of eco-friendly vehicles jumped 33.1% from a year earlier to 232,000 units. On a retail basis, hybrids (HEVs) rose 32.1% to 138,000 units, and electric vehicles increased 54.1% to 86,000 units. As a result, the share of eco-friendly vehicles in total sales expanded to 29.7%, up 6.6 percentage points from 23.1% a year earlier.
Buoyed by this, Kia achieved a 4.1% global market share in the first quarter on a retail basis. That was up 0.5 percentage points from a year earlier and marked the first time surpassing the 4% range. A Kia official emphasized, "Amid the global push by Chinese automakers, achieving a 4.1% market share by growing across all regions rather than being concentrated in a specific area is a turning point for sales growth."
◇ "Raw material prices rising and Middle East and North Africa volume risks"… pushing to expand eco-friendly vehicles
Kia projected that an uncertain business environment will continue, with ongoing geopolitical risks, intensified competition in major markets, and changes in external conditions. A Kia official said, "The impact of rising raw material prices for aluminum, nickel, rhodium and palladium began to appear in March," adding, "Even if the war (between the United States and Iran) ends in a short period this year, we expect oil to stay around $100, which clearly poses an expense risk."
There is also a possibility that volumes in the Middle East and North Africa will fall due to the war between the United States and Iran. Kia sells about 260,000 vehicles a year in the region. However, a Kia official said, "If the war drags on, some volumes in the Middle East and North Africa will inevitably face disruption, but we believe we can make up for it in other regions and achieve the 3.35 million units sales target set for this year."
Kia's operating profit target for this year is 10.2 trillion won. Kia expects rising raw material prices to affect operating profit by around 5%, and disruptions to volumes in the Middle East and North Africa by around 2% to 3%. However, a Kia official said, "With the emergence of Chinese automakers, we have recognized the need for cost competitiveness and have been preparing for cost increase risks through diversifying parts supplies," adding, "We believe we can meet the 10.2 trillion won target this year."
Going forward, Kia plans to actively push eco-friendly vehicle–centered sales in Korea by expanding electric vehicle sales with the EV4, EV5 and PV5 and by launching the Seltos hybrid. In the U.S. market, it will expand sales of high-profit models Telluride and Carnival and strengthen its hybrid lineup to increase market dominance. In particular, it plans to respond effectively to changes in local policies such as tariffs, subsidies and environmental regulations.
In Europe, it plans to strengthen leadership in the local electric vehicle market based on the impact of building a full-volume EV lineup spanning the EV2, EV3, EV4 and EV5. In emerging markets including India and Latin America, it will continue to push to expand locally tailored strategic models and supply volumes.