Hyundai, Kia face pressure to hike prices amid US tariff impact

Headquarters of Hyundai Motor and Kia in Seoul / Courtesy of Hyundai Motor Group

Amid widespread forecasts of double-digit declines in second-quarter operating profit, speculation is growing that Hyundai Motor and Kia may need to consider raising their prices in the United States to offset potential earnings losses caused by the country’s 25 percent auto tariff.

Supporting this speculation is the likelihood of an even larger profit decline in the following quarter, driven by shrinking U.S. inventory that has stopped them from raising prices so far.

Korean auto exports to the U.S. have been subject to a 25 percent tariff since early April, with Seoul currently in talks with Washington seeking an exemption or a reduction in the rate.

According to data from market tracker FnGuide, Hyundai Motor is estimated to have chalked up an operating profit of 3.63 trillion won ($2.66 billion) between April and June, down 15.1 percent from a year earlier. Kia operating profit is also forecast to have dropped by 13.7 percent to 3.14 trillion won during the same period.

In response to the auto tariff, both firms have resorted to sales of vehicles already stocked in the U.S. to maintain profitability. The U.S. accounts for almost half of their total exports.

“Starting from July, Hyundai Motor and Kia are exposed to heightened tariff risks, as they will need to import more cars to meet demand in the U.S.," an auto industry official said. "Unless they reshape their price strategy, the decline in operating profit is likely to extend into the second half of this year."

Some suggest that the carmakers may follow in the footsteps of Toyota, which recently started increasing prices for some models.

Hyundai Motor and Kia maintain that they do not have immediate plans to raise vehicle prices in the U.S., but market watchers believe it is only a matter of time for them to do so, given the increased costs to handle the tariff.

Citing concerns of the tariff-induced earnings drop, Meritz Securities has revised down a target stock price for Hyundai Motor from 310,000 won to 265,000 won.

“Hyundai Motor started selling vehicles subject to the tariff in the U.S. from June, and the carmaker is estimated to have expanded the unexpected spending of some 720 billion to cope with the tariff,” said Kim Joon-sung, an analyst at the securities firm.

The analyst also pointed out the low operation rate of Hyundai Motor Group Metaplant America in Georgia. The carmaker held an opening ceremony for the facility in March to increase its localized production in the U.S.

“The operation rate for the manufacturing facility remains below 30 percent at a time when the carmaker has to increase the figure to defend itself from the tariff shock,” the analyst said.