Kia Overcomes Semiconductor Crisis, Posts Operating Profit of 1.3 Trillion Won in Q3 (Comprehensive)

[Asia Economy Reporters Changhwan Lee and Jehun Yoo] Kia recorded solid third-quarter earnings despite the ongoing shortage of automotive semiconductors. Improved results were disclosed as sales of high-profit new models such as Sorento, Carnival, and Seltos increased.

Kia announced on the 27th that its preliminary figures for the third quarter showed sales of 17.7528 trillion KRW and operating profit of 1.327 trillion KRW. These represent increases of 8.8% and 579.7%, respectively, compared to the same period last year.

Profitability Improves with Increased Sales of Core RV Vehicles and New Models in Q3

Kia’s global wholesale sales volume in the third quarter was 684,413 units, down 2.1% year-on-year. Domestic sales decreased by 8.6% to 124,964 units, while overseas sales fell by 0.6% to 559,449 units compared to the previous year.

In the domestic market, steady demand for core RV (recreational vehicles) models and new cars like the Sportage, along with the prolonged new car effect of popular models, were observed. However, production disruptions caused by semiconductor shortages prevented waiting demand from translating into deliveries, resulting in a sales decline.

It was explained that while last year’s third quarter allowed focus on expanding domestic sales due to lockdowns in overseas markets, this year the semiconductor shortage affected domestic production as well, making it impossible to avoid a sales decrease.

In the key overseas market of North America, sales slightly declined due to a shortage of available inventory despite strong demand. However, in Europe, India, the Middle East and Africa, and Latin America regions, efforts to minimize production disruptions and recovery in sales of core models led to significant sales growth, minimizing the overall decline in overseas sales.

Third-quarter sales reached 17.7528 trillion KRW, up 8.8% year-on-year, despite unfavorable conditions such as worsened sales environment due to supply disruptions and a decline in the KRW-USD exchange rate, driven by expanded sales of RV models and new cars.

The cost of sales ratio remained similar to the previous year at 82.0%, despite cost increases from raw material price hikes, due to improved sales mix centered on high value-added models and a rise in average selling prices.

Regarding operating profit, profitability improved through expanded sales of high-profit new models such as Sorento, Carnival, and Seltos, significant reductions in incentives, and efficient sales and administrative expense management.

Notably, the share of RV sales (excluding China, based on wholesale sales) rose by 1.1 percentage points year-on-year to 58.7%, contributing to improved profitability.

The ratio of selling and administrative expenses fell by 6.3 percentage points year-on-year to 10.5%, despite increased labor costs, as one-time large-scale quality costs incurred last year normalized and sales increased significantly.

As a result, third-quarter operating profit was 1.327 trillion KRW, with an operating margin of 7.5%.

Semiconductor Supply Shortage Expected to Persist in Q4

Regarding the future business environment, Kia expects global automobile demand to recover due to the base effect from last year’s COVID-19 pandemic but foresees ongoing concerns such as production disruptions and inventory shortages caused by the global semiconductor shortage. The company plans to pursue sales recovery and profitability enhancement while thoroughly managing risks.

In particular, Kia anticipates that the global semiconductor shortage will continue into the fourth quarter and may be prolonged, forecasting that normalization of automobile production will take considerable time.

In response, Kia emphasized that in the short term it will ▲mobilize company-wide capabilities to secure parts supply, ▲continue to improve the sales mix through minimizing production disruptions and efficient inventory management to optimize sales, and ▲prioritize liquidity management while thoroughly managing external risks such as prolonged COVID-19, inflation concerns, and US-China tensions.

In the mid to long term, Kia plans to secure profitability by expanding production and sales of electrified models and to concretize new revenue and business areas such as software and services.