[Friday Story] Hyundai Kia Motors, the 'Bittersweet World No.1' Amid the COVID Crisis

Hyundai Kia Motors Tops Global Auto Industry Net Profit in 1Q
Surpasses Toyota, BMW, Volkswagen, GM, and Others
Competitors' Earnings Plunge Due to COVID-19 Crisis
Performance Protected by High-Value Vehicles and Regional Diversified Portfolio

[Asia Economy Reporter Su-yeon Woo] Hyundai Kia Motors has recorded the highest net profit among global automakers for the first time in the first quarter of this year, surpassing Toyota, BMW, Volkswagen, and GM. Although this is largely due to the 'windfall' effect from competitors' performance declines caused by the COVID-19 pandemic, it is analyzed that Hyundai Kia succeeded in defending its performance through expanding sales of high value-added vehicles and a diversified portfolio strategy in emerging markets. Some experts also predict that Hyundai Kia could use this crisis as an opportunity to expand its global market share, similar to its rapid growth after the global financial crisis.

According to Bloomberg and Samsung Securities on the 22nd, Hyundai Kia recorded a quarterly net profit of $612 million (8.186 billion KRW) in the first quarter of this year, ranking first among 16 global automakers. Although the net profit size sharply decreased by 53% compared to the same period last year, its ranking rose four steps from 5th place last year to 1st place. Following Hyundai Kia, BMW ranked 2nd ($611 million), Toyota 3rd ($580 million), Volkswagen 4th ($576 million), and GM 5th ($294 million).

In terms of sales revenue, Hyundai Kia rose two places from 7th in the first quarter of last year to 5th this year. Although Hyundai Kia's sales revenue is still behind Toyota, Volkswagen, Daimler, and Ford, it generated the highest net profit relative to capital investment.

This achievement is attributed to increased sales mainly of high value-added sports utility vehicles (SUVs) and the premium brand Genesis. In the first quarter of this year, Hyundai's SUV sales ratio was 42.9%, up 5 percentage points from the same period last year, and Kia's leisure vehicle (RV) sales ratio accounted for more than half at 52.5%.

While the European and Chinese markets were hit hard by COVID-19 in the first quarter, Hyundai Kia's sales portfolio diversified into emerging markets including Korea, which played a key role in defending its performance. Moreover, the Korean market, which accounts for a high dependency of 17%, confirmed solid demand and supported performance from March onward.

By market, China, where COVID-19 spread from February, and Europe, where movement restrictions were enforced from early March, suffered significant impacts. In contrast, the U.S. saw relatively limited declines as lockdown measures were implemented from mid-March, and the Korean market fully recovered demand from March, rebounding thereafter. Consequently, automakers with high sales proportions in Europe and China experienced significant declines in first-quarter performance. European companies such as Daimler and Volkswagen, which concentrated about half of their sales in Europe last year, and GM, which depends on China for 40% of its sales, faced sharp performance drops. Chinese automakers, fully reliant on the domestic market, faced deficit risks in the first quarter.

Of course, Hyundai Kia could not avoid declines in sales revenue and net profit due to COVID-19. However, it is evaluated that Hyundai Kia seized the opportunity to increase market share mainly in China and Korea, which recovered earlier amid competitors' setbacks. The global market share of Korean automakers in the first quarter of this year expanded by 1.2 percentage points from the previous year to 8.4%.

Accordingly, there is growing anticipation that, as Hyundai Kia aggressively increased its global market share during the recovery phase after the 2008 global financial crisis, this COVID-19 crisis could also serve as a turning point to convert adversity into opportunity. Hyundai Kia's global sales, which were only 4.18 million units in 2008, expanded to 7.13 million units in 2012 by recording double-digit growth rates for three consecutive years during the demand recovery period (2009?2012).

Im Eun-young, a researcher at Samsung Securities, said, "Unlike competitors with a high proportion of advanced markets such as the U.S. and Europe, Hyundai Kia has a high proportion of emerging markets including domestic sales, which allowed it to perform well even amid the COVID-19 crisis. With a high possibility of a V-shaped rebound in the global market in the third quarter, Hyundai Kia's factory recovery operation rate, currently in the middle of a new car cycle, is expected to be the highest."