Hyundai Motor Co Reports Slowing Demand and Profit Decline

SEOUL (Reuters) – Hyundai Motor Co warned on Thursday of slowing demand and intensifying competition, while maintaining its 2024 earnings target after reporting a 7% fall in third-quarter operating profit, sending its shares down more than 5%.

>The business environment for the car industry is worsening," said Hyundai Motor’s CFO, Lee Seung-jo during a conference call, highlighting growing policy uncertainties and global geopolitical risks.

Financial Highlights

Hyundai Motor, along with its affiliate Kia Corp, is the world's third-largest automaker by sales. It reported an operating profit of 3.6 trillion won ($2.6 billion) for July-September, down from 3.8 trillion won in the same period last year. This result was lower than a 3.9 trillion won average forecast by 20 analysts compiled by LSEG SmartEstimate, known for its accuracy.

The decline in earnings was attributed to 320 billion won in warranty costs related to its Santa Fe SUV engines in the U.S. and increased sales incentives due to a global slowdown in car demand. Nonetheless, Hyundai aims for an operating margin of 8% to 9% for 2024, having achieved an 8.9% margin from January to September this year.

Market Reaction

Hyundai Motor's share price dropped 3.7% after the earnings announcement. Major European carmakers like Volkswagen, Mercedes-Benz, and BMW have also indicated a worsening outlook for auto demand and rising costs, resulting in significant losses in the sector's market value.

Hyundai's global retail sales fell 5% in the third quarter compared to the previous year, with a decline in European sales offsetting increases in the U.S. and South Korea. Electric vehicle sales decreased, but hybrid EV sales surged over 40% from a year earlier. In response to global EV demand slowdowns, Hyundai planned to double its hybrid lineup while cutting targets for EV sales and delaying some model launches.

Indian IPO

Hyundai announced that proceeds from its public listing in India would primarily strengthen its competitive position in that market. The company will elaborate on its shareholder return policy in South Korea this year following a review of investment plans. Analysts noted that the decline in stock price reflected disappointment over the absence of a shareholder return policy after the Indian IPO.

Hyundai Motor India shares fell 7.2% on their market debut, affected by lukewarm retail investor reception amid concerns over steep valuations and industry slowdowns.

Hyundai's new U.S. factory in Georgia began production earlier this month and will gradually increase output, producing EVs eligible for U.S. federal tax credits. In September, Hyundai and General Motors announced a non-binding agreement to explore collaboration in vehicle development, supply chain issues, and clean-energy technologies.

($1 = 1,378.6300 won)