"Hyundai Faces Key Test in Defending Profitability Next Year, Beyond Q3 Results" [Click e-Stock]

Operating Margin Expected to Drop to 5% in Q3 Due to Tariff Impact
Focus on Tariff Response Strategies for Next Year
Key Factors: Impact of HEV Launches and Increased U.S. Production

Hyundai Motor Company is expected to deliver third-quarter results that meet market expectations this year. The key issue is whether the company can maintain its profitability next year. Attention is focused on whether Hyundai can protect its margins through hybrid vehicle sales and increased utilization rates at its U.S. plant, even amid ongoing tariff issues.

On October 16, Shinhan Investment Corp. maintained its target price for Hyundai at 270,000 won and its "Buy" rating, citing these factors. The previous day's closing price was 223,500 won.

Shinhan Investment Corp. forecasts Hyundai's third-quarter revenue at 46.3428 trillion won and operating profit at 2.6229 trillion won. Compared to the same period last year, revenue is expected to increase by 8.0%, while operating profit is projected to decrease by 26.8%. The expected operating profit is in line with market consensus.

The company estimated that U.S. tariff costs, which are projected to be around 1.5 trillion won, will be fully reflected starting this quarter. Additionally, provisions for sales warranties due to end-of-period exchange rate increases are expected to rise by about 230 billion won. As a result, the operating margin is likely to fall to the 5% range. The positive effects of average exchange rate increases are estimated at 130 billion won, increased sales volume at 500 billion won, and higher incentive costs at around 220 billion won. Since the expiration of the electric vehicle tax credit last month, a slowdown in EV demand and mounting pressure to increase incentives are seen as inevitable.

Assuming a 25% tariff rate, next year’s operating profit is projected at 12.106 trillion won. Despite the tariff environment, the company expects to defend its profitability by achieving an operating margin close to 6% through new hybrid (HEV) model launches and higher utilization rates at the Georgia plant (HMGMA) in the United States. Starting with the Palisade HEV, key models such as the Elantra (Avante in Korea) and Tucson will also introduce HEV versions next year, diversifying the product lineup. HMGMA is expected to increase production to 200,000 units next year and 300,000 units by 2027, structurally reducing the volume exposed to tariffs. Overseas new model launches and production bases will also be strengthened, including the Ioniq 3 in Europe and expanded production capacity in India.

The company’s shareholder return policy is also expected to shine. Hyundai has pledged a minimum dividend per share (DPS) of 10,000 won. If the planned 4 trillion won share buyback over three years is delayed, those funds may be used to increase dividends. Park Kwangrae, a researcher at Shinhan Investment Corp., stated, "In a scenario with a 15% tariff rate, the operating margin could recover to the high 6% range," adding, "It will be important to monitor the timeline for tariff negotiations, HEV sales in the U.S. after October, and utilization rates at HMGMA."

Hyundai Motor Group Metaplant America (HMGMA) located in Ellabell, Savannah, Georgia, USA. Yonhap News Agency