Hyundai Motor Co. posted record revenue in the second quarter, but operating profit fell more than 20 percent from a year earlier as the Middle East conflict drove up raw material costs and disrupted parts supplies.
Hyundai Motor said Thursday that revenue for the April-June period rose 1.9 percent from a year earlier to a record 49.22 trillion won, exceeding the market consensus of 48.6 trillion won. The company’s growth was supported by record quarterly hybrid vehicle sales of 187,661 units and a weaker Korean won against the U.S. dollar.
First-half revenue rose 2.7 percent to a record 95.15 trillion won, nearing the 100 trillion won mark. However, profitability deteriorated significantly. Second-quarter operating profit dropped 20.8 percent from a year earlier to 2.85 trillion won, below the market consensus of 2.99 trillion won, while net profit fell 11.2 percent to 2.89 trillion won.
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Supply Chain Pressures
The Middle East war drove up costs, pushing the cost-of-sales ratio up 1.1 percentage points to 82.2 percent. Selling and administrative expenses rose 6.8 percent amid intensifying competition, while supply chain disruptions weighed on sales in Africa, the Middle East and Europe.
Affiliate Hyundai Glovis Co. was also affected. The logistics unit reported a 15.8 percent increase in second-quarter revenue to 8.71 trillion won, but operating profit fell 8.1 percent to 495.1 billion won. By region, wholesale sales fell 23.8 percent in Africa and the Middle East and 10.6 percent in Europe.
Domestic sales in Korea declined 16.4 percent, reflecting stronger competition from Chinese electric vehicle makers and supply disruptions following a fire at a local parts supplier. Sales rose 1.1 percent in the U.S., 5.3 percent in India and 7.1 percent in Central and South America, but global wholesale sales still fell 6.9 percent to 991,885 vehicles.
Future Plans and Risks
During the earnings call, Chief Financial Officer Lee Seung-jo said the company would continue working toward its annual sales guidance, though it could fall slightly short. To support second-half sales, Hyundai Motor plans to regain momentum by rolling out new models.
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It recently launched the facelifted seventh-generation Grandeur, The New Grandeur, and plans to boost domestic demand with the fully redesigned compact sedan The All New Avante. In Europe, it will expand its electrified lineup with the Ioniq 3. The automaker is also deepening its localization strategy in China.
Hyundai Motor and Kia Corp. said Wednesday they opened UX Studio Shanghai, a user experience research center that will incorporate feedback from Chinese consumers into product development and strengthen competitiveness in artificial intelligence-defined vehicles (AIDVs). Labor unrest, in the meantime, remains a key risk to earnings.
Hyundai Motor’s union said Thursday it will stage an additional four-hour partial strike each day from July 29-31 after gradually escalating industrial action since mid-July. Kia also held a strike authorization vote Thursday. Industry estimates suggest Hyundai Motor could lose about 900 billion won in production if the strike continues through the end of the month.
