Tariffs Cause Hyundai Profits To Drop 16% In Second Quarter

It’s not looking too good for Hyundai and Kia in the wake of the new US tariffs on imported vehicles. In the automaker’s second-quarter earnings report, tariffs have already had a major impact on the company’s profits, and there doesn’t seem to be any special trade deal coming through anytime soon.

The US and South Korea had planned to meet to discuss a new trade arrangement this Friday, but the US has since called it off. Now, there is an August 1 deadline before the US imposes an increased tariff rate on countries that didn’t make a deal.

Checking Hyundai’s Figures

According to the second quarter earnings report from Hyundai, operating profit dropped nearly 16% from 4.3 trillion won, or $3.13 billion, a year ago to down to only 3.6 trillion won, or $2.6 billion, this quarter. Net profit dropped 22.1% to 3.3 trillion won, or $2.4 billion, for the same period, while overall revenue was up 7.3% to 48.3 trillion won, or $35.2 billion.

“Higher incentives amid intensifying industry competition, as well as the impact of the global trade environment, weighed on the operating profit,” the automaker said in a statement.

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No Special Deal For South Korea Yet

The company claims US tariffs specifically cost them 828 billion won, or roughly $603.3 million, at the current 25% import cost. That tariff rate could more than double after the August 1 deadline to 50% or more on autos. The US government has already made special deals with the UK, China, and, as of this week, Japan. UK vehicle imports only get hit with a 10% tariff, while Japan will get hit with a 15% tariff instead of the full blast.

If South Korea can’t reach a deal soon, it’s likely that Hyundai and Kia will find some of their vehicles at a significant pricing disadvantage compared to competitive Japanese models in particular.

The Worse Could Still Be To Come

During a conference call regarding company earnings, a Hyundai representative suggested that the rest of the year will see a bigger negative impact on profits, though the company has no idea exactly how bad it will get yet. Last year, South Korea shipped $34.7 billion worth of new vehicles to the US, which is by far its biggest export item and a key priority for its full economy. By comparison, its next biggest export market is semiconductors, which only amounts to about a third of the value.

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More than half of the vehicles Hyundai and Kia sell in the US are built in South Korea and imported. The automakers have not yet raised US vehicle prices to offset the impact of tariffs, though that may change soon. Hyundai currently builds the Tucson, Santa Fe, Santa Cruz, Ioniq 5, and Ioniq 9 models in the US, so those are safe from tariffs unless the automaker eventually adopts a blanket lineup price increase to offset the cost. Kia builds versions of the EV9, K5 sedan, Sorento, Telluride, and Sportage in the US. Company shares were down 2% following the outlook of a greater tariff hit looming on the horizon.

Source: NikkeiAsia