Disappearing Inventory in Q3... Hyundai and Kia Build 'Tariff Breakwater' with High-Profit Models

[Financial News] Hyundai Motor and Kia have seen their Q2 operating profits decrease by double digits due to the impact of high US tariffs, hitting their earnings hard. In the second half, uncertainties are growing as the abolition of electric vehicle subsidies in the US, the largest car market, is predicted. The two companies plan to tighten their belts by expanding local production in the US and reducing material and processing costs, while also increasing sales of high-profit models such as hybrid vehicles (HEV) to overcome tariff waves and defend profits. 
■ Disappearance of Non-Tariff 'Inventory' Shield in Q3 and Q4
According to industry sources on the 27th, Hyundai recorded sales of 48.2867 trillion won and an operating profit of 3.6016 trillion won in Q2 this year. Compared to Q2 last year, sales increased by 7.3%, but operating profit decreased by 15.8%. During the same period, Kia also recorded a 6.5% increase in sales to 29.3496 trillion won, but operating profit fell by 24.1% to 2.7648 trillion won. 
Both companies succeeded in expanding sales volume in the global market, achieving external growth, but profitability significantly deteriorated. The immediate impact was mainly due to the US imposing a 25% tariff on imported cars from April. 
The issue is that the Q2 results only partially reflect the tariff impact. Before the tariffs took effect, the companies managed to stockpile inventory in the US, allowing them to hold out somewhat, but from Q3 onwards, the non-tariff inventory shield will disappear, leaving room for further profitability deterioration depending on the outcome of US-Korea negotiations. The US's announcement of the abolition of electric vehicle subsidies, which could reach up to $7,500 by September 30, is also a negative factor. As the actual purchase price of electric vehicles could rise significantly, an overall market contraction is inevitable.
■ Expansion of High-Profit Car Sales such as Hybrid Vehicles
The two companies plan to defend profitability as much as possible by expanding sales of high-profit models, including hybrid vehicles, in the second half.
For Hyundai, global hybrid vehicle sales in Q2 already reached about 170,000 units, a record high, with the global sales ratio also hitting a peak of 15.8%. Hyundai plans to launch a new Palisade hybrid model equipped with a 'next-generation hybrid system' that improves performance and efficiency in the US this fall. They also plan to expand the hybrid portfolio by sequentially equipping the next-generation hybrid system in small, medium, and large models, as well as the Genesis lineup. Taesik Yoon, Hyundai's IR Director, stated in the Q2 earnings conference call, "We plan to continue increasing market share in the hybrid market through ongoing sales expansion." 
They are also strengthening the Genesis brand, another high-profit model. From next year, they plan to target the European market with three Genesis electric vehicles, while unveiling the high-performance lineup 'GV60 Magma' within the year. 
Kia also plans to maximize the use of US production volumes for local supply and respond to the slowdown in electric vehicle demand by actively utilizing a mixed production system to flexibly produce vehicles. Kia sold about 111,000 hybrid vehicles in the global market in Q2, achieving a 23.9% sales growth compared to 89,000 units in the same period last year. They plan to further strengthen this trend in the second half. Sunguk Jung, Kia's IR Executive Director, explained, "About 70% of hybrid growth in the first half came from the US market, and in the second half, we plan to actively increase hybrids by over 100% compared to the previous year." one1@fnnews.com Reporter Jeong Won-il