Hyundai Motor Stumbled by Provisions, Overcoming Crisis with Hybrid (Comprehensive)

Hyundai Motor Q3 Business Performance Conference on the 24th

Hyundai Motor Company's third-quarter earnings this year fell short of consensus, but sales growth centered on hybrids remained solid. Despite setting aside a large provision due to the extension of the warranty period for sport utility vehicles (SUVs) sold in the United States, Hyundai emphasized that its operating profit margin target of 8-9% for this year remains unchanged.

On the 24th, Hyundai announced that its third-quarter sales reached a record high for the third quarter at 42.9283 trillion KRW, up 4.7% from the previous year. Operating profit was 3.5809 trillion KRW, falling short of the consensus (3.8 trillion KRW). This represents a 6.5% decrease compared to the previous year. The operating profit margin also declined by 1.0 percentage point to 8.3% year-on-year.

◆ Impact of US SUV Warranty Extension Provision= The decrease in operating profit in the third quarter was due to one-time costs. Hyundai proactively extended the warranty period for the 2013-2019 Grand Santa Fe (Maxcruz) models sold in the US, setting aside a one-time provision liability of 320 billion KRW. Yoon Tae-sik, Hyundai Motor IR team leader, said, "Due to the characteristics of US SUV consumers who frequently use towing functions, there is a higher possibility of issues occurring in the installed Lambda II engine," adding, "As a preemptive measure, we agreed with the US National Highway Traffic Safety Administration to extend the warranty period."

The Lambda II engine is installed not only in SUVs but also mainly in large models such as the Grandeur and Genesis. When asked about additional provision increases, he added, "This issue stems from the characteristics of US SUV consumers and was calculated based on the total number of vehicles sold, so there will be no additional provision entries."

Hyundai Maxcruz [Photo by Hyundai]

◆ Third Highest Quarterly Operating Profit Excluding Provisions= Hyundai's third-quarter operating profit decreased due to one-time costs, but the quality of the performance remained solid. Excluding the impact of this provision, the third-quarter operating profit would be 3.9 trillion KRW, with an operating profit margin of about 9.1%. In this case, the operating profit ranks as the third highest on a quarterly basis.

Hyundai attributed the achievement of this performance to strong sales of various models and brands such as hybrids and Genesis, continuous mix improvement and cost reduction efforts, and favorable exchange rates. In particular, hybrid sales increased by 45% year-on-year this quarter, driving the strong performance.

In the third quarter, Hyundai sold 131,000 hybrid vehicles globally. The share of hybrids in total sales rose by 4.5 percentage points year-on-year to 13%. Hyundai expressed confidence that this 'hybrid boom' trend can be maintained in the fourth quarter and that the previously announced annual operating profit margin target of 8-9% can be achieved without difficulty. Yoon said, "For some models, hybrids are even more profitable than internal combustion engines," adding, "Hybrids are securing double-digit profitability and contributing to overall company performance."

On the same day, Hyundai announced a third-quarter dividend of 2,000 KRW per share, an increase of 500 KRW compared to the same period last year. Additionally, Hyundai stated that it plans to use the IPO proceeds from its Indian subsidiary, which was successfully listed on the 22nd, for shareholder returns. A Hyundai official said, "The cash inflow from the listing will be used to enhance competitiveness in the Indian market and invest in future growth engines," adding, "We will discuss Hyundai's shareholder return plans with the board and communicate with shareholders as soon as possible."