Strategic Task Force Formed to Counter Tariff Impact

Hyundai Motors (005380.KS) has established a specialized task force aimed at minimizing the financial repercussions of potential US tariffs. This initiative includes strategies to increase the local procurement rate of automobile parts within the United States, aiming to reduce reliance on imported components and potentially qualify for tariff exemptions or reductions.

Production Adjustments: Tucson Assembly Moves to Alabama

As part of its strategic response, Hyundai is transferring a portion of its Tucson SUV production from Mexico to its plant in Alabama. While the initial volume of Tucson production in Mexico was relatively small, around 16,000 units last year, this move signals a broader effort to align production with US trade policies. This shift mirrors similar actions taken by other automakers facing tariff pressures, such as BMW’s expansion of its South Carolina plant to increase US-based production.

Considering Further Production base relocations

Beyond the Tucson shift, Hyundai is actively evaluating the relocation of production bases for other vehicles currently manufactured in Korea and exported to the US. This could involve establishing new facilities in regions with more favorable trade agreements or expanding existing US-based operations. Such decisions are complex, involving considerations of labor costs, supply chain logistics, and overall market demand.

Financial Performance Remains Strong Despite Tariff Concerns

Despite the looming threat of tariffs, Hyundai reported robust frist-quarter financial results. Operating profit increased by 2% to 3.6 trillion won ($2.5 billion), marking the highest profit ever recorded for the first quarter. This performance was largely in line with market expectations.

Key Factors Driving Profitability

• Weaker Won: A weaker Korean won boosted operating profit by 601 billion won.
• Hybrid Vehicle Sales: Strong sales of hybrid vehicles, up by 40%, contributed significantly to the positive results.

These gains offset negative factors such as increased sales incentives in the US and Europe, and a decline in sales of high-profit SUVs.

US Market Dynamics: Sales Surge Ahead of Potential Tariffs

In the United States, Hyundai experienced a notable increase in consumer demand ahead of the potential tariff implementation. While sales to dealers increased by only 1%, sales to consumers surged by 11%, indicating a rush to purchase vehicles before prices potentially increased due to tariffs. this trend highlights the sensitivity of the automotive market to trade policy changes.

Analyst Perspective: Trade Negotiations and Tariff Risks

According to Kim Chang-ho, an analyst at South Korean investment securities, an early agreement on automobile tariffs between South Korea and the united States is unlikely without significant concessions from south Korea.We believe that the tariff risk on cars is greater than other items, he stated, underscoring the potential impact of tariffs on the automotive industry.

We believe that the tariff risk on cars is greater than other items.

Kim Chang-ho, South Korean investment securities analyst

unchanged full-Year Earnings Outlook

Despite the uncertainties surrounding US trade policy, Hyundai has maintained its full-year earnings outlook, projecting a 3-4% increase in sales and an operating profit margin of 7.0-8.0%. This forecast,unchanged from January,reflects the company’s confidence in its ability to navigate the evolving trade landscape through strategic production adjustments and cost management measures.