Hyundai Motor Co (005380.KS) earned its best quarterly profit in eight years on July 21 as a weak won boosted the value of its earnings abroad and demand remained strong for the South Korean automaker’s high-margin sport-utility vehicles (SUVs).
Despite a chip shortage scenario improving, one of the world’s biggest automakers, including affiliate KIA Corp, indicated challenges such as demand weakened by inflation, supply woes, and increased marketing costs amid tougher competition.
Net profit climbed to 2.8 trillion won ($2.13 billion) for the second quarter compared with 1.8 trillion a year ago, exceeding an average analyst forecast of 2.2 trillion from Refinitiv SmartEstimate.
The company said in an official statement:
“A robust sales mix of SUV and Genesis luxury models, reduced incentives from a lower level of inventory, and a favorable foreign exchange environment helped lift revenue in the second quarter.”
That occurred despite a sales slump in an unpleasant economic environment, it added.
The improvement of the situation involving the global chip shortage helped Hyundai recommence weekend and overtime shifts at domestic factories, to compensate for vehicle production lost due to a nationwide trucker strike last month, said analysts.
Notably, the company maintained its full-year revenue and margin guidance, saying it forecast a steady recovery from the chip and component shortage that caused a drop of 5.3% in second-quarter sales of the year.
Hyundai said it intended to increase vehicle production in the second half to satisfy consumer demand, though it still foresees fluctuations in the cost of raw materials and some supply chain disruptions.
However, inflation and linked economic slowdowns present some risks to demand in the second half as interest rates hike and consumers lose buying power, investor relations chief Zayong Koo said on an earnings call.
Shares of Hyundai closed flat, against a jump of 0.9% in the benchmark KOSPI (.KS11).
High-Interest Rates Might Jeopardize Hyundai Earnings
Kevin Yoo, an analyst at Daol Investment & Securities, stated:
“Rising interest rates translate into higher borrowing costs for consumers. With record-high inflation in major economies, financing the purchase of cars would become even more expensive, which essentially is not a good market condition for automakers.”
However, hiked interest rates will potentially take months to lower car demand as supplies were still tight amid bottled-up demand from the coronavirus pandemic, he added.
Buy Crypto NowHyundai also faces a growing wages bill after a domestic union deal that increases every worker’s annual pay by 9%, in a bid to prevent strikes and production losses in its largest manufacturing base. The deal came days after Hyundai said it would invest around 2 trillion won to set up a dedicated electric vehicle (EV) factory, its first new car factory in South Korea in about three decades.
In May, Hyundai said it would put in over $10 billion in the United States by 2025, including $5.5 billion in the state of Georgia to establish electric vehicle and battery facilities.
($1=1,312.1200 won)
