Hyundai hurt by weak sales in South Korea

Seoul — South Korean car maker Hyundai Motor warned on Thursday of intensifying competition and uncertain global economic conditions after posting a 2.4% drop in quarterly profit, hit by a domestic sales plunge.

Hyundai’s cautious outlook and weak performance contrast with bullish forecasts from its US rivals such as General Motors and Ford Motor which this week reported strong profit growth thanks to stable pricing and demand for petrol-engine vehicles.

The once-stellar performer that outdid rivals during the severe global economic downturn more than a decade ago is facing strong near-term headwinds from its shrinking exposure to China and faltering demand in South Korea.

“We expect competition among automakers to intensify, raising related cost burden, while global macroeconomic uncertainty is also growing. We expect challenging business conditions to continue going forward,” Hyundai said in a statement.

The world’s No 3 carmaker by sales along with affiliate Kia sold 1.5% fewer vehicles, delivering 1.007-million units in the first quarter.

Sales in South Korea, its second-biggest market after the US, slumped 16%, as consumers grappled with surging inflation and a weak economy.

Hyundai said domestic sales were affected by the temporary suspension of production at its Asan plant, which is being revamped for production of electric vehicles (EVs).

Vehicle sales in the US market jumped nearly 10%, tracking other legacy carmakers that are enjoying strong profit growth.

Sales of hybrid vehicles jumped 17% globally, underscoring consumers’ growing interest in more affordable vehicles over more expensive pure electric cars that led EV giant Tesla to report this month its first vehicle sales drop in nearly four years.

Hyundai said it would continue to expand its electrified model line-ups globally by introducing more hybrids and new IONIQ EV models.

CFO Seung Jo Lee said in an earnings call that the company planned to add equipment to build hybrid vehicles at its EV plant in Georgia and production would start in the second half of this year.

Hybrid car demand

“While we are currently seeing growing hybrid car demand, Hyundai needs to carefully factor in how long this trend would last and its competitiveness against rivals such as Toyota,” Shin Yoon chul, an analyst at Kiwoom Securities.

Toyota, which relies on hybrids for sales far more than any other major carmaker, saw its shares jump 35% this year and is set to report strong quarterly results next month, lifted by robust sales of hybrid models.

When asked about the impact of Volkswagen’s Tennessee plant joining the United Auto Workers on Hyundai’s US production sites, Hyundai said it did not see signs of “UAW formation” at its production sites.

However, analysts cautioned that the UAW’s push at US plants of foreign carmakers were likely to continue and could result in Hyundai raising wages to prevent workers from joining the union.

After a bruising setback in China, hurt by intensifying competition from nimble domestic rivals, Hyundai is doubling down on India.

Hyundai, which was the third-biggest car maker along with Kia in China in 2009, sold just 2,200 cars in the world’s biggest vehicle market last year, a fraction of its total annual sales of 4.2-million units.

It would launch its first India-made EVs by 2025, Hyundai said on Thursday, as it looks to boost its presence in the nascent space dominated by Tata Motors.

Hyundai Moto’s executive chair Euisun Chung visited India, where it is the second biggest carmaker and is considering an initial public offering of its local unit, this week to discuss mid- and long-term strategies.

Hyundai reported a net profit of 3.2-trillion won ($2.32bn) for January-March, down from 3.3-trillion won a year earlier, but ahead of an average forecast of 3.0-trillion won by LSEG SmartEstimate.

Revenue rose 7.6% to 41-trillion won, helped by solid overseas sales and as a weaker local currency also boosted repatriated earnings.

Shares in Hyundai Motor closed down 1.0%, versus a fall of 1.8% in the benchmark Kospi.

Reuters