Kia Posts Q3 Operating Profit of 1.3 Trillion Won...Strong Performance Amid Semiconductor Crisis
[Asia Economy Reporters Changhwan Lee, Jehun Yoo, Gimin Lee] 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. From next year, sales of the dedicated electric vehicle EV6 are also expected to rise significantly, contributing to further earnings improvement.
Kia announced on the 27th that its preliminary figures for the third quarter showed sales of KRW 17.7528 trillion and operating profit of KRW 1.327 trillion. These represent increases of 8.8% and 579.7%, respectively, compared to the same period last year.
Improved Profitability Driven by Increased Sales of Core RV Vehicles and New Models in Q3
Kia's global wholesale sales in the third quarter totaled 684,413 units, a 2.1% decrease compared to the previous year. Domestic sales declined by 8.6% to 124,964 units, while overseas sales decreased by 0.6% to 559,449 units.
In the domestic market, steady demand for core RV (recreational vehicles) models and new models such as Sportage, along with prolonged new model effects of popular vehicles, were observed. However, sales declined due to production disruptions caused by semiconductor shortages, which prevented backlog demand from converting into deliveries.
It was noted 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 decline.
In the key overseas market of North America, sales slightly decreased due to insufficient available inventory despite strong demand. However, in Europe, India, the Middle East, and Latin America, efforts to minimize production disruptions and recovery in sales of core models led to significant sales growth, minimizing overall overseas sales decline.
Third-quarter sales reached KRW 17.7528 trillion, 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 vehicles.
The cost of sales ratio remained similar to the previous year at 82.0%, despite increased costs 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 RV sales ratio (excluding China, based on wholesale sales) rose by 1.1 percentage points year-on-year to 58.7%, contributing to profitability improvement.
The selling and administrative expense ratio fell by 6.3 percentage points year-on-year to 10.5%, as one-time large-scale quality costs incurred last year normalized and sales increased significantly, despite rising labor costs.
As a result, third-quarter operating profit was KRW 1.327 trillion, with an operating margin of 7.5%.
Prolonged Semiconductor Supply Shortage Expected; Maximizing Production Volume
Regarding future business conditions, Kia expects a recovery in global automobile demand due to the base effect from last year's COVID-19 pandemic but acknowledges 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 normalizing automobile production will take considerable time.
In the short term, Kia emphasized plans to mobilize company-wide capabilities to secure parts supply, minimize production disruptions, optimize sales through efficient inventory management, and continue improving the sales mix. Additionally, it will prioritize liquidity management while carefully handling external risks such as prolonged COVID-19, inflation concerns, and US-China tensions.
In the mid to long term, Kia aims to secure profitability by expanding production and sales of electrified models and to concretize new revenue and business areas such as software and services.
From next year, electric vehicle sales are also expected to increase significantly. In particular, sales of the first dedicated electric vehicle, EV6, are projected to rise sharply. Vice President Woojung Joo stated during a conference call following the earnings announcement, "We are forecasting demand for about 100,000 units of the EV6 by next year and are preparing to respond promptly to production."
Vice President Joo added, "Electric vehicle sales are increasing faster than expected across all regions, and environmental factors such as regulations are also supportive, so we plan to expand our sales strategy."
He also predicted that overall sales volume will increase next year, not just for electric vehicles. "We expect volume to increase significantly compared to this year and will focus on meeting that volume," he said.
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