As the won has quickly strengthened against the U.S. dollar and the Chinese yuan recently, warning lights have come on for Hyundai Motor and Kia's second-half results. When the won appreciates, the won-converted revenue from foreign currency earned through exports decreases, and Chinese-made cars gain price competitiveness in the domestic market.
According to the foreign exchange market on the 11th, as of 9:40 a.m. the won-dollar rate was trading at 1,415.4 won, down 4.1 won (0.3%) from the previous day. The won-dollar rate stood at 1,552.5 won on the 1st of last month. With the won steadily strengthening over the past month or so, the exchange rate has fallen by nearly 9%.
Many analysts say multiple factors are behind the decline in the won-dollar rate. First, as U.S.-Iran cease-fire talks eased tensions in the Middle East, demand for the dollar as a safe asset fell. On top of that, the Bank of Korea's decision on the 16th of last month to raise the base rate to 2.75% from 2.5% also had an impact.
It is also interpreted that the United States' move, in coordination with Japan, to shore up the yen is weighing on a sharp drop in the won-dollar rate. Following support for the yen, the likelihood has grown that the United States could step in to boost the value of the won, a friendly nation's currency.
Scott Bessent, the U.S. Treasury secretary, said in an interview with CNBC on the 4th (local time), "If the yen continues to weaken, other currency will follow," adding, "We have also witnessed excessive volatility in the won." Earlier, the United States and Japan officially signaled they would jointly intervene in the foreign exchange market to defend the yen.
In financial markets, some expect the won-dollar rate to fall into the 1,300-won range. An official at an asset management firm said, "Korea pledged $350 billion (about 498 trillion won) in investment in the United States on condition of tariff cuts after the Donald Trump administration launched last year, but the weaker won has made it difficult to raise the investment funds," adding, "The United States is likely to take this into account and try to lift the won's value."
The problem is that a rapid, short-term rise in the won reduces revenue earned through exports. In particular, autos, a representative export sector, take a direct hit.
The United States accounts for about 30% of Hyundai Motor and Kia's total global sales. Hyundai Motor has a local plant in Alabama and Kia in Georgia, and electric vehicles are produced at the Meta Plant America, Georgia's dedicated eco-friendly vehicle plant. But because most Genesis models and hybrid trims are exported from Korea, a drop in the won-dollar rate inevitably reduces revenue.
Hyundai Motor said in last year's business report that a 5% move in the won-dollar rate would change pre-tax net income by 169.8 billion won. In fact, in the second quarter this year, Hyundai Motor's total sales volume fell 6.9% on-year to 991,885 units, but thanks to exchange-rate effects, revenue rose 1.9% to 49.2153 trillion won. During this period, the average won-dollar rate rose 7% on-year to 1,502 won.
Hyundai Motor plans to roll out several new models in the second half, including the new Avante, Tucson, and Genesis GV80 hybrid, which are core models enjoying strong popularity in the United States. There are concerns that if the won-dollar rate falls into the 1,300-won range and the won continues to strengthen, the anticipated new-model boost could be halved.
The continued strength of the won against the yuan is also a headwind for Hyundai Motor and Kia. As of today in the foreign exchange market, the won-yuan rate was trading at 209.73 won, down 0.7 won (0.3%) from the previous day. Compared with the close at 228.51 won on the 1st of last month, it has fallen 8.2% in about a month.
The stronger the won, the higher the margins on Chinese electric vehicles sold domestically. Not only Chinese local brands such as BYD, which tout value for money, but also Tesla, which produces vehicles in China and sells them in Korea, can leverage their greater price competitiveness to capture market share faster.
According to the Korea Automobile & Mobility Association (KAMA), 69,513 China-made electric vehicles were newly registered in Korea in the first half. That is a 178.7% surge from the same period last year. The share of total newly registered EVs also rose to 35% this year from 26.8% in the first half of last year.
A person at a finished-car company said, "Following Tesla and BYD, Zeekr has begun sales in Korea, and other Chinese brands such as Chery are preparing to enter starting in the second half," adding, "If the won continues to fall against the yuan, the position of electric vehicles made by Hyundai Motor and Kia could be shaken further than now."