South Korean automaker Hyundai Motor Co. reported a 2.4% drop in quarterly profit on Thursday, citing intensifying competition and uncertain global economic conditions. The company’s cautious outlook and weak performance stand in contrast to the bullish forecasts from its U.S. rivals, General Motors and Ford Motor Co., who reported strong profit growth this week thanks to stable pricing and demand for gasoline-engine vehicles.
Hyundai, which was once an outperformer during the severe global economic downturn more than a decade ago, is now facing strong near-term headwinds from its shrinking exposure to China and faltering demand in South Korea. “We expect competition among automakers to intensify, raising related cost burden… while global macroeconomic uncertainty is also growing. We expect challenging business conditions to continue going forward,” Hyundai said in a statement.
The world’s No.3 automaker by sales along with affiliate Kia Corp sold 1.5% fewer vehicles, delivering 1.007 million units in the first quarter. Sales in South Korea, its second-biggest market after the United States, slumped 16%, as consumers grappled with surging inflation and a weak economy. Hyundai said domestic sales were also impacted by the temporary suspension of production at its Asan plant, which is being revamped for production of electric vehicles (EVs).
Vehicle sales in the U.S. market jumped nearly 10%, tracking other legacy automakers that are enjoying strong profit growth. Sales of hybrid vehicles jumped 17% globally, underscoring consumers’ growing interest in more affordable vehicles over more expensive pure electric cars that led EV giant Tesla to report this month its first vehicle sales drop in nearly four years.
Hyundai said it would continue to expand its electrified model lineups globally by introducing more hybrids and new IONIQ EV models. Chief Financial Officer Seung Jo Lee said in an earnings call that the company plans to add equipment to build hybrid vehicles at its EV plant in Georgia and production would start in the second half of this year.
“While we are currently seeing growing hybrid car demand, Hyundai needs to carefully factor in how long this trend would last and its competitiveness against rivals such as Toyota,” said Shin Yoon chul, an analyst at Kiwoom Securities. Toyota, which relies on hybrids for sales far more than any other major automaker, saw its shares jump 35% this year and is set to report strong quarterly results next month, lifted by robust sales of hybrid models.
When asked about the impact of Volkswagen’s Tennessee plant joining the United Auto Workers on Hyundai’s U.S. production sites, Hyundai said it currently does not see signs of “UAW formation” at its production sites. However, analysts cautioned that the UAW’s push at U.S. plants of foreign automakers would likely continue and could result in Hyundai raising wages to prevent workers from joining the union.
After a bruising setback in China, hurt by intensifying competition from nimble domestic rivals, Hyundai is now doubling down on India. Hyundai, which was the third-biggest car maker along with Kia in China in 2009, sold just 2,200 cars in the world’s biggest auto market last year, a fraction of its total annual sales of 4.2 million units.
It will launch its first India-made EVs by 2025, Hyundai said on Thursday, as it looks to boost its presence in the nascent space dominated by Tata Motors. Hyundai Motor Group’s Executive Chair Euisun Chung visited India, where it is the second biggest automaker and is considering an initial public offering of its local unit, this week to discuss mid- and long-term strategies.
Hyundai reported a net profit of 3.2 trillion won ($2.32 billion) for January-March, down from 3.3 trillion won a year earlier, but ahead of an average forecast of 3.0 trillion won by LSEG SmartEstimate. Revenue rose 7.6% to 41 trillion won, helped by solid overseas sales and as a weaker local currency also boosted repatriated earnings. Shares in Hyundai Motor closed down 1.0%, versus a fall of 1.8% in the benchmark KOSPI.
