Kia’s earnings hit by headwinds from US tariff

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

Kia reported a sharp decline in second-quarter earnings on expanded spending to cover a 25 percent tariff from the United States, the carmaker said Friday in a regulatory filing.

Kia reported an operating profit of 2.76 trillion won ($2 billion) between April and June, down 24.1 percent from the previous year. Its sales, however, increased 6.5 percent to 29.34 trillion won during the same period because of robust demand for value-added eco-friendly vehicles.

Kia’s earnings drop was widely expected, as Hyundai Motor also reported a double-digit earnings decline the previous day due largely to the same tariff shock. Both automakers rely heavily on the U.S., their largest export market.

Kia expected global trade uncertainty to continue weighing on its earnings in the latter half of this year, an outlook that reflects the unresolved tariff negotiations between Seoul and Washington.

After the U.S. on April 2 began imposing the tariff on all auto imports, Korea has engaged in rounds of trade talks with the U.S., but the two countries have yet to reach a consensus.

The decline in Korean carmakers' earnings is expected to extend into upcoming quarters unless the government clinches a timely trade deal that reduces the tariff rate.

Kia's Sportage SUV / Courtesy of Kia

Kim Seung-jun, senior vice president at Kia, said the carmaker will focus on increasing its localized production to meet U.S. demand and reduce its tariff penalty.

“We will supply our U.S.-assembled cars to local customers there first, and redirect our export channel for vehicles manufactured in Korea to Canada or other markets, in efforts to minimize the shock from the tariff,” Kim told investors during a conference call.

Even though Kia suffered from tariff headwinds, the company set a new record for the total number of auto sales, with 1.59 million sold in the first half of the year, up 2 percent from the previous year.

Kia shared plans to tackle the unfavorable business environment by boosting sales for its in-demand hybrid SUV lineups, such as Sportage and Sorento, and building a full-lineup of electric vehicles (EVs).

To offset a possible earnings drop in the U.S., the carmaker is also moving to expand sales in other key strategic markets, such as Europe and India.

In Europe, Kia plans to launch the EV4 compact electric car in the third quarter to enhance its brand image as a carmaker with diverse EV offerings, including the EV3 and EV5.

For the Indian market, the carmaker pledged to sell some 300,000 vehicles this year by strengthening its dealer network there.