Kia(000270) posted double-digit revenue growth in the second quarter from a year earlier, setting a quarterly record for revenue, but operating profit fell. Sales of electrified vehicles (xEV), including electric vehicles and hybrid vehicles, were strong and hit a record high, but profitability declined as large incentives were offered in the U.S. and Europe.
Kia said it views incentives as a short-term measure and believes it can achieve a profitability improvement from next year as it works to secure cost competitiveness. However, it also noted that, for now, it needs to maintain the size of incentives to gain market share in competition with Chinese automakers.
On the 24th, Kia said second-quarter consolidated revenue was 3.3037 trillion won, up 12.6% from the same period last year. Over the same period, Kia's operating profit fell 4.9% to 262.9 billion won, while net profit rose 2.6% to 232.8 billion won. The increase in net profit was largely due to equity-method gains reflecting improved earnings at affiliates.
◇ Quarterly record revenue on strong electrified vehicle sales in U.S. and Europe… unit prices also improved
Kia increased sales volume in the second quarter and achieved a quarterly record for revenue. Kia's second-quarter wholesale sales were 851,639 units, up 4.5% from the same period last year. Global retail sales also rose 5.9% over the same period to about 839,000 units, bringing its global market share to 4%.
A sharp increase in the share of electrified vehicle sales drove the overall rise in volume. Kia's second-quarter electrified vehicle retail sales came to 296,000 units, up 60% from a year earlier. Electrified vehicles accounted for 35.3% of total sales, up 11.9 percentage points from a year earlier. Within electrified sales, electric vehicles (EVs) rose 88.4% to 110,000 units, while hybrid vehicles (HEVs) increased 61.0% to 178,000 units.
HEVs surged in the U.S. market and EV sales climbed in Europe. In the second quarter, Kia sold 224,000 units in the U.S., up 2.8% from a year earlier, with HEVs accounting for 29.6% of the total, compared with 12.1% a year earlier. In Europe, it sold 151,000 units, up 12.9% over the same period. EVs accounted for 34.7%, up 17.2 percentage points from a year earlier.
Second-quarter sales in the domestic market rose 8.6% from a year earlier to 154,816 units. As a result, Kia's second-quarter domestic sales share was 18.2% and overseas sales share was 81.8%. The domestic market also saw an increase in electrified vehicle sales, with EVs making up 24.5% in the second quarter, up 13.6 percentage points from a year earlier. HEVs rose 2.0% over the same period to 36.6%.
Kia said that in the domestic market, sales were strong for the EV3 and EV5 electric sport-utility vehicles (SUVs) and the PV5, a purpose-built vehicle (PBV). In Europe, the new EV2 launched this year had a new-model effect, and sales of the EV4, EV5 and PV5 gained momentum. In the U.S., the new-model effect of the Telluride and strong sales of core SUVs equipped with HEV models such as the Sportage and Sorento had an impact, it said.
On the back of strong electrified vehicle sales, Kia's second-quarter consolidated average selling price (ASP) also came in at 41.1 million won, improving 7.9% from a year earlier. In other words, it sold more higher-priced cars than in the second quarter last year.
◇ Profitability down on higher incentives amid Chinese competition… this year's operating profit to reach 10.2 trillion won
Despite higher revenue and ASP, operating profit declined due to aggressive pricing and incentive programs implemented to counter competition from Chinese EV brands in the domestic and Western European markets. In the second quarter, Kia's incentive and pricing expenditures reached 723 billion won. That is more than double the 341 billion won spent in the same period last year.
Kia said that compared with the same period last year, the incentive amount per vehicle increased by about $400 in the U.S. and more than 1,000 euros in Europe. Kim Seung-jun, Kia's head of finance (executive director), said, "To respond to Chinese automakers in markets such as Europe, it seems necessary for the time being to pursue a strategy of increasing market share even if we give up some profitability," adding, "The incentive burden will not increase in the second half."
Kia said it will maintain a similar level of incentives in the second half while continuing efforts to improve profitability. Kim said, "We are working to enhance product competitiveness and secure cost competitiveness to compete with Chinese companies," adding that from next year the fruits of these efforts are expected to materialize and profitability will improve.
Despite deteriorating profitability, Kia believes it can achieve its operating profit target of 10.2 trillion won this year. Kim said, "In recent years, second-half operating profit margins have been lower than in the first half due to repeated recognition of large quality expense provisions and the impact of Chuseok and strikes," adding, "We do not expect such one-off expenses this year, and we also expect sales growth to come in close to 10% from a year earlier."