Hyundai Motor, Inflated US IRA Risk... See the Forest

[Asia Economy Reporter Hwang Junho] On the 16th of last month, with the enactment of the U.S. Inflation Reduction Act (IRA) under President Joe Biden, South Korea's automobile industry, including Hyundai Motor and Kia, was considered one of the main affected sectors. However, upon closer examination, it cannot be seen solely as a victimized industry.

On the 4th, Samsung Securities presented three strategies for Hyundai Motor and Kia to secure a leading position in the U.S. electric vehicle market through an automotive sector analysis report.

One option is to utilize existing factories in the second half of next year to produce E-GMP electric vehicles. Hyundai’s Alabama plant and Kia’s Georgia plant are scheduled to produce the Ioniq 5, EV6, and EV9. The time required for line conversion is about three months. While battery procurement could be a challenge, collaboration with Korean battery companies that have production facilities in the U.S. is possible. Another option is to start early operation of new factories in the second half of 2024. By operating Hyundai and Kia’s new factories (with a capacity of 300,000 units), production time can be shortened by more than six months. The weak won exchange rate can also be leveraged as an advantage. Currently, the won/dollar rate at 1,330 won represents a 15% depreciation compared to last year’s average rate of around 1,144 won. The price difference with Tesla vehicles is between $15,000 and $20,000, so the impact of subsidies on price competitiveness is not significant. Additionally, electric vehicles produced in the U.S. are expected to receive only $3,750, which is 50% of the existing tax credit, due to mineral dependency on China. For the Ioniq 5 and EV6, $3,750 corresponds to about 7-8% of their price. This level can be sufficiently managed by the weak won.

Researcher Lim Eun-young of Samsung Securities stated, "Due to the high growth in demand in the U.S. electric vehicle market, Hyundai Motor and Kia’s market share in the U.S. electric vehicle sector is expected to increase," adding, "SL, Hwashin, and Sungwoo Hitech, which have entered the U.S. market alongside them, will also have opportunities for increased average selling prices and diversification of sales channels."