"Japan Lowers Auto Tariffs... Korea Needs a Bigger Strategy [Click eStock]"

Expectations for Resolving Tariff Uncertainty
Profit Outlook Rises as 4 Trillion Won in Tariff Costs Are Reduced
Possibility of a 'Big Picture' with Large-Scale Investment in the Robotics Sector

The Japanese government has agreed with the United States to lower automobile export tariffs from the previous 25% to around 15%. If the South Korean government negotiates under the same terms on July 25, it is expected that domestic automakers could eliminate tariff-related uncertainties amounting to approximately 4 trillion won. If South Korea also presents a large-scale investment plan during negotiations, similar to Japan, a scenario in which investments in the robotics sector accelerate could become possible.

On July 24, Daol Investment & Securities analyzed the impact of Japan's tariff reduction on the domestic industry. The previous day, Japan agreed to lower the tariff rate on automobile exports to the US from 25% to 12.5%. With an additional 2.5% tariff applied, the final tariff rate will be 15%. This is the first negotiation case in the automobile industry since the introduction of the low-tariff quota (TQP) negotiated by the United Kingdom earlier last month. As a result, the stock prices of Japanese automakers such as Toyota rebounded.

The annual automobile export volume to the US from South Korea and Japan is similar, at about 1.37 million and 1.3 million units, respectively. For finished vehicles, there was a risk of incurring about 8 trillion won in annual tariff costs. With the tariff now halved, uncertainty regarding profits of about 4 trillion won per year has been resolved. Hyundai Motor and Kia also saw their stock prices rise significantly the previous day, driven by similar expectations for tariff relief.

South Korea is scheduled to hold a 2+2 trade dialogue on July 25. It is necessary to reach a mutual agreement on tariff reductions, including automobile tariffs, on the same basis as Japan. Since there is already a precedent with Japan, even if the results of this negotiation are not satisfactory, the market is expected to anticipate the possibility of additional agreements. In addition, the reduction in annual profit decline will serve as a key factor for raising market earnings forecasts (consensus).

Currently, the estimated monthly FOB (Free On Board) tariff costs for Hyundai Motor and Kia are 358 billion won and 219 billion won, respectively. If tariffs are reduced to the same level as Japan, annual profit increases of 2.1 trillion won and 1.3 trillion won, respectively, are expected. Yoo Jiwoong, a researcher at Daol Investment & Securities, explained, "The market is not only focused on the potential for annual profit increases, but also expects several variables?such as higher utilization rates at domestic factories, easing of labor-management issues, and accelerated improvement in electric vehicle productivity?to drive up the current price-earnings ratio (PER), which is at about four times."

Daol Investment & Securities emphasized the need to pay attention to the possibility of a larger investment agreement. As a condition of the tariff agreement, Japan pledged to invest 550 billion dollars in the United States. There is a possibility that South Korea will also accompany the tariff negotiations with a large-scale investment in the US. For Hyundai Motor Group, the scenario is expected to include accelerated investment in humanoid robots. The new plant alone, which will produce 500,000 units, could generate more than 100,000 jobs.

Researcher Yoo stated, "The market is increasingly likely to reflect the introduction of physical artificial intelligence (AI) as a catalyst for finished vehicle stocks in the second half of the year," and added, "By October this year, Hyundai Motor has already decided to introduce the second-generation bipedal robot 'Atlas 2' at its US plant, aiming to differentiate productivity from other automakers."