Hyundai Motor reports earnings shock amid US tariff

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

Hyundai Motor reported a sharp drop in second-quarter earnings, hit hard after the U.S. imposed a 25 percent auto tariff, the carmaker said Thursday.

The Korean carmaker’s operating profit came in at 3.6 trillion won ($2.63 billion) between April and June, down 15.8 percent from the previous year. Its sales, however, increased 7.3 percent to 48.28 trillion won during the same period on robust performance in North America, the carmaker said.

Hyundai Motor has gone all out to defend against the tariff shock by focusing on sales of its inventories in the U.S., after the country imposed the tariff in April.

It suffered an operating profit fall worth 828.2 billion won to cover the cost of the tariff, the carmaker said during a conference call. Net profits also suffered a bigger drop of 22.1 percent, to 3.25 trillion won.

The carmaker was not exposed to the tariff shock during the entire second quarter by utilizing sales of its U.S. inventories, but as they are nearly out of stock, the company will have to deal with a bigger tariff impact in the latter half of this year.

Hyundai Motor’s third-quarter earnings outlook remains murky, as Korea and the United States have reached a stalemate in their tariff discussions. Japan recently struck a trade deal with the U.S., lowering the Japanese auto tariff rate to 12.5 percent from 25 percent.

Of particular concern is Hyundai Motor’s increasing sales reliance on the U.S. According to data from the carmaker, it sold some 476,000 vehicles in the U.S. in the first half of this year, up 10.5 percent from the previous year. The carmaker chalks up more than 40 percent of its sales in North America.

Hyundai Motor left open the possibility of hiking its vehicle prices in the U.S. to minimize the impact from the tariff.

Lee Seung-jo, executive vice president at Hyundai Motor, said the carmaker will push for a “fast follower” strategy in pricing.

“We will not proactively change auto prices due to the tariff, but will take a flexible approach by monitoring the market thoroughly,” Lee told investors during the conference call.

The executive remained cautious about sharing its views on the ongoing tariff negotiations between Seoul and Washington.

“Expectations are that the 25 percent auto tariff we face in the U.S. may drop, but as the negotiation is still underway, we cannot comment details on the issue as a private company,” Lee said.

Hyundai Motor also said it will also gradually localize production for more automobiles and parts in the U.S., in a desperate move to improve its earnings and achieve sustainable growth in the world’s largest economy.

Despite the tariff-induced earnings decline, the number of the carmaker’s total vehicle sales here and abroad inched up 0.8 percent to 1.06 million during the same period.

In particular, sales for the firm’s eco-friendly cars — represented by electric vehicles and hybrids — soared by 36.4 percent to some 262,100 cars on the global market.