Kia Motors Posts 195.3 Billion KRW Operating Profit in 3Q Despite Quality Cost Impact (Update)

Q3 Revenue 16.3218 Trillion KRW... Up 8.2% YoY

Hyundai Motor Group's Executive Vice Chairman Chung Eui-sun was appointed chairman on the 14th, marking the full-scale launch of the group's third-generation management system. Hyundai Motor Group, including Hyundai Motor Company and Hyundai Mobis, held an extraordinary board meeting that morning and approved the appointment of the new chairman Chung. As a result, Chairman Chung became the undisputed head of the group just 2 years and 1 month after his promotion to executive vice chairman in September 2018, and 7 months after becoming chairman of Hyundai Motor's board in March this year. The photo shows the Hyundai Motor Group headquarters in Seocho-gu, Seoul, on the day. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Kim Ji-hee] Kia Motors recorded an operating profit of 195.3 billion KRW in the third quarter of this year despite reflecting large-scale quality costs. Sales during the same period amounted to 16.3218 trillion KRW, an 8.2% increase compared to the same period last year.

On the 26th, Kia held a conference call at its headquarters in Yangjae-dong, Seoul, to present its Q3 2020 business performance. Compared to the same period last year, operating profit decreased by 33% to 195.3 billion KRW, ordinary profit was 231.9 billion KRW (down 48%), and net profit was 133.7 billion KRW (down 59%).

A Kia official explained, “Although overall sales declined due to the continued impact of COVID-19 despite the easing of lockdown measures in major countries, sales increased mainly in advanced markets, resulting in expanded market share in key regions. Although large-scale quality costs occurred, efforts across the company to expand the sales proportion of high-profit new models and RVs and reduce fixed costs minimized the decline in operating profit.” He added, “Excluding the engine-related provisions, the Q3 operating profit exceeded market expectations through structural improvements.”

Global sales in Q3 this year were 699,402 units, down 0.4% from last year. Domestic sales increased by 3.2% to 136,724 units, while overseas sales decreased by 1.3% to 562,678 units. In particular, the domestic market saw increased sales compared to the previous year due to stable sales of the K5 and Sorento, along with the full effect of the new Carnival model. Overseas, sales recovered mainly in advanced markets such as the U.S. and Europe as COVID-19 lockdowns eased, but slow recovery in emerging markets led to an overall slight decline.

By major region, sales in North America decreased by 5.5% to 196,891 units compared to Q3 last year; Europe increased by 4.2% to 128,175 units; India surged by 175.7% to 38,023 units; and China rose by 15.1% to 63,350 units. Other markets including Russia, Latin America, Africa & Middle East, and Asia recorded a 19.7% decrease to 136,239 units.

Despite sales decline and a slight drop in the KRW-USD exchange rate, Q3 sales revenue increased by 8.2% year-on-year to 16.3218 trillion KRW due to improved sales mix centered on new models and RVs such as the K5, Sorento, and Carnival, which raised the average unit price. In particular, strong domestic sales of the new Sorento and new Carnival, expanded sales of Telluride and Seltos in the North American market, robust Seltos sales in India, and the successful market entry of the new Sonet significantly increased the RV sales proportion. As a result, the RV share rose by 9.1 percentage points year-on-year to 57.8%, reaching an all-time high.

Operating expenses increased by 30.5% year-on-year to approximately 2.747 trillion KRW due to a large reflection of additional engine-related quality provisions in warranty costs, despite company-wide cost reduction efforts. The selling and administrative expense ratio rose by 2.9 percentage points to 16.8% compared to the previous year. Consequently, operating profit decreased by 33% to 195.3 billion KRW, and the operating profit margin fell by 0.7 percentage points to 1.2% year-on-year.

A Kia official stated, “We will accelerate sales expansion domestically with new models such as the Carnival, Sorento, and K5, tighten the reins on sales recovery in North America and India with high-profit new models, and continue to steadily expand sales of eco-friendly vehicles in the European market.”