Hyundai Motor's revenue in the second quarter of this year rose sharply from a year earlier, while operating profit fell by more than 20%. Analysts said the setbacks were compounded by the United States' high tariff, rising raw material prices, and reduced production due to supply disruptions in parts.
Hyundai Motor said on the 23rd in an earnings conference call that second-quarter operating profit fell 20.8% from a year earlier to 2.8509 trillion won. The figure missed the securities consensus (average forecast) of 2.994 trillion won compiled by FnGuide.
Revenue for the same period rose 1.9% on-year to 49.2153 trillion won, the highest on a quarterly basis.
◇ "Tariff shock was limited… but internal and external headwinds cut operating profit"
The drop in operating profit largely reflected higher raw material prices. Due to rising raw material costs such as plastics, Hyundai Motor's cost of goods sold in the second quarter increased by 1.302 trillion won from a year earlier to 40.479 trillion won. The cost-of-sales ratio was 82.2%, up 1.1 percentage points from a year earlier. Lee Seung-jo, Hyundai Motor's head of finance, said on the call, "We are continuing cost-reduction efforts to offset the rise in cost of goods sold," adding, "The negative profit-and-loss impact from raw material price hikes will narrow in the second half."
Production disruptions for high value-added models due to fires at parts makers at home and abroad also had an impact. A fire at a domestic engine valve plant halted parts supply, which appears to have hampered production of Genesis and hybrid electric vehicles (HEV). Hyundai Motor developed and applied substitute engine valves in May to offset the impact, but since Genesis and HEVs are high value-added models, it could not avoid a deterioration in operating profit. In addition, a fire at Hyundai Mobis' India plant caused production disruptions at Hyundai Motor's India plant.
The impact of tariffs is also continuing. Operating profit fell by about 900 billion won in the second quarter due to tariffs, roughly in line with 860 billion won in the first quarter. Lee said, "The second-quarter tariff impact is similar to the first quarter, but the shock has eased significantly compared with 1.4 trillion won in the third quarter and 1.5 trillion won in the fourth quarter last year," adding, "The shock from tariffs in the third and fourth quarters this year will be smaller than last year." As tariffs have effectively become the new normal, the comment suggests a push to raise revenue in other areas.
Intensified competition in North America and Europe and higher incentives from selling older inventory before new model launches also dragged down operating profit.
Still, second-quarter revenue rose 1.9% on-year to 49.2153 trillion won, setting a record high for the first time in a year, which is a positive. Sales volume edged down, but sales of high value-added models such as HEVs increased. HEV sales reached 187,661 units, a quarterly record high. Eco-friendly vehicle sales, including HEVs and electric vehicles, totaled 266,627 units, up 1.7% from a year earlier. HEVs and electrified vehicles accounted for record highs of 18.9% and 26.9% of total sales, respectively.
◇ Sales volume dipped slightly… guidance maintained despite tough conditions
Still, total sales volume fell slightly from a year earlier. According to Hyundai Motor, the company sold 991,885 vehicles in global markets in the second quarter, down 6.9% from a year earlier. Domestic sales fell 16.4% to 157,064 units due to the impact of the Safe Industry fire, and overseas sales fell 4.9% to 834,821 units. A global demand slowdown and the fire at Hyundai Mobis' India plant affected the decline in sales volume.
In the United States, it sold 264,587 units, up 0.9% from last year. Thanks to this, Hyundai Motor kept its U.S. market share in the 6% range for a fifth straight quarter.
Hyundai Motor will continue to push its contingency plan in the second half, expecting an uncertain business environment due to geopolitical risks and changes in conditions in key markets. Hyundai Motor said, "With geopolitical issues and intensifying competition, global auto industry demand fell 3.8% from a year earlier, creating unprecedented difficulties."
New models are the breakthrough. In Korea, starting with the seventh-generation facelifted model the New Grandeur, the company will significantly expand new launches. A full-change Avante and Genesis hybrid are among the models to be released. Overseas, it plans to respond flexibly to market demand with a range of powertrains and region-specific portfolios. It will first launch the small electric SUV Ioniq 3 in Europe in the third quarter and the new Tucson in the fourth quarter.
Lee said, "First-half sales in Europe were sluggish because the internal-combustion Kona and Tucson have been on the market for a long time, and the push by Chinese electric vehicles was quite aggressive," adding, "We lacked a B-segment electric vehicle to counter Chinese brands, but we are preparing to launch the Ioniq 3. We will prioritize price competitiveness and maximize cost reductions to balance profitability."
Hyundai Motor kept its annual guidance unchanged. The target operating margin is 6.3% to 7.3%. Lee said, "The auto industry is generally weak, but we achieved solid results versus competitors," adding, "We are delivering solid results that do not lag behind other competitors." He continued, "We turned around in the first quarter compared with the fourth quarter last year, and we have been on a growth trend in the first and second quarters this year," adding, "We will continue to grow in the third and fourth quarters to achieve the guidance."