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Earnings

Hyundai Motor, Kia post strong Q2 profits; Chip shortage dims outlook

Despite their solid performance, the two carmakers warn of tough business conditions in the second half

By Jul 22, 2021 (Gmt+09:00)

Hyundai's premium Genesis cars boost its second-quarter earnings
Hyundai's premium Genesis cars boost its second-quarter earnings

Hyundai Motor Co. and Kia Corp., South Korea’s two largest automakers, on Thursday posted strong second-quarter earnings, driven by pricey sport utility vehicles and premium Genesis models.

But the two car-making units of Hyundai Motor Group warned of tough business conditions in the third quarter, citing the shortage of automotive chips, higher raw material prices and the resurgence of the pandemic, caused by the spread of the Delta coronavirus variant.

Hyundai Motor’s consolidated operating profit more than tripled to 1.89 trillion won ($1.64 billion) in the three months to June from 590.3 billion won a year earlier, according to its regulatory filing.

The second-quarter profit marks its best result in seven years.

Revenue increased 39% on year to 30.33 trillion won from 21.86 trillion won.

The company said solid demand for high-margin SUVs such as the Genesis GV70 and other premium Genesis cars resulted in a decent second-quarter showing.

Its second-quarter operating profit margin rose to 6.2% from 2.7% a year earlier.

“Sales of SUV models and Genesis luxury brand models drove the momentum in sales volume, and declining incentives helped lift revenue and profitability in the second quarter,” Hyundai said in a statement.

Hyundai’s overseas auto shipments rose 80.5% to 830,667 units in the second quarter from a year earlier, while domestic sales fell 11% to 200,682 units.

SUVs accounted for 46.6% of its total sales in the second quarter, up 5.8 percentage points from the second quarter of 2020.

The automaker said its strong second-quarter results were also thanks to a lower comparison base in the year-earlier period when the entire auto industry was reeling from the outbreak of the pandemic.

On Thursday, Kia Corp. also reported strong second-quarter results.
On Thursday, Kia Corp. also reported strong second-quarter results.

KIA’S SALES, PROFIT AT RECORD HIGHS

On Thursday, Hyundai Motor’s sister firm Kia Corp. said both its second-quarter revenue and operating profit hit all-time highs.

Operating profit soared to 1.49 trillion won from 145.2 billion won a year ago, while sales increased 61.3% to 18.34 trillion won from 11.37 trillion won.

The company said strong sales in Latin America, Europe and the US helped increase total global auto sales.

Sales of higher-margin recreational vehicles such as the Sorento and Carnival accounted for 56.5% of its total auto sales, raising the company’s operating profit margin to 8.1% from 1.3% a year earlier.

The strong quarterly results of Hyundai Motor and Kia come as car manufacturers around the world are struggling with a global shortage of semiconductors used in vehicles.

Hyundai and Kia intermittently halted some of their assembly lines, including the one that makes the latest all-electric IONIQ5 crossover, in Korea due to a short supply of automotive chips.

Hyundai Motor's Santa Cruz pickup truck
Hyundai Motor's Santa Cruz pickup truck

CHIP SHORTAGE TO EASE

Hyundai Motor said it expects the global automotive chip shortage to ease from the third quarter, but there are other lingering concerns, dimming the outlook for its earnings for the rest of the year.

To reduce its reliance on foreign suppliers for auto chips, Hyundai said it will strengthen partnerships with local chipmakers.

In efforts to prop up sales in the second half, Hyundai said it will roll out more electric vehicles, including the launch of its first Genesis EVs in the local market, and increase sales of the Santa Cruz pickup truck in the US market.

But higher prices of raw materials such as aluminum, palladium and radium, and a possible slowdown in demand for new cars amid the renewed fears of the COVID pandemic will weigh on Hyundai and Kia’s earnings for the rest of the year, the companies said.

On Thursday, Hyundai Motor said it will pay an interim dividend of 1,000 won a common share to help boost shareholder value.

Write to Hyung-Kyu Kim at khk@hankyung.com

In-Soo Nam edited this article.

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