Hyundai Motor Co

Welcome everyone to Hyundai Motor's 2023 Q1 Business Results Conference Call. On behalf of Hyundai Motor Company, I appreciate your time for participating in today's call. Please refer to the presentation, HMC 2023 Q1 Business Results on our IR website. Today's presentation consists of two parts, sales summary and financial summary. For more information, please refer to the appendix page. The first part is sales summary. Our 2023 first quarter global wholesale increased by 13.2% year-on-year to 1,021,712 units, while retail sales increased by 3.6% year-on-year to 986,823 units. In Q1, with semiconductor and other parts supply regaining balance, productions have increased and our wholesale sales saw a year-on-year increase with strong back orders. In domestic markets, thanks to better parts supply situation, productions have gone up and strong sales of the all-new Grandeur launched in Q4 last year resulted in all-time high Q1 sales up by 26% year-on-year. In North America, strong sales are continued, led by SUVs and Genesis, resulting in wholesale sales increase by 24% year-on-year. In the U.S. market, sales of Tucson and Santa Fe have increased significantly, with sales of SUVs in the U.S. rising 28% year-on-year. EV sales in the U.S. increased 100% year-on-year, thanks to increased sales of IONIQ 5 and the launch of new IONIQ 6. Our U.S. market share in Q1 was 5.5%, up 0.4 percentage points year-on-year. In the European region, sales growth was seen around eco-friendly vehicles with the launch of IONIQ 6 and strong sales of hybrid vehicles such as Tucson. And as a result, wholesale sales increased 10.5% year-on-year. Despite gradual improvement of parts supply in India, sales were limited due to inventory shortage. However, Wholesale sales increased by 11.2% year-on-year due to the low base set in the previous year. The new Verna, which was launched at the end of March, is receiving positive market response and is expected to contribute to future sales in Q2 and beyond. Next is sales and key status of each model. In 2023 Q1, global sales volume has increased year-on-year in most segments due to increased productions. Concentrated sales on segment D, especially with the launch of the Grandeur in Q4 last year, coupled with continued strong sales of the existing SUV and Genesis, is continuing the sales growth in high-value models. Global SUV sales have increased by 0.7 percentage points year-on-year to 52.7% due to increased sales of our flagship models such as Tucson, Santa Fe, and Creta. Genesis's wholesale sales in Q1 have increased by 10.2% year-on-year due to continued strong sales of existing models such as GV70 and GV80, but the sales portion fell by 0.1 percentage points year-on-year to 5.1% as better parts supply situation has increased the sales of all models. Sales of eco-friendly cars increased 40% year-on-year due to increased sales of EVs and hybrid vehicles. sales of IONIQ 5 continue to increase and the global launch of IONIQ 6 in Q1 upped by global EV portion by 1.5 percentage points to 6.5% and the number of sales increased by 48% year-on-year. While we continue our efforts to expand EV sales through global sales of IONIQ 6 and with the launch of the all-new Kona EV We will also continue to improve our sales mix by expanding sales of high-value models through the global launch of the all-new Kona and the launch of the all-new Santa Fe in the second half of the year. As of this year's business results report, further sales details for major markets such as Korea, the U.S., and Europe are provided in Appendix 11 to better understanding in our sales performance. This is the end of the presentation on sales, and now I'll move on to P&L. This is the summary of income statement. Consolidated revenue increased by 24.7% year-on-year to 37,788.7 billion KRW. Operating income increased by 86.3% year-on-year to 3,592.7 billion KRW. The Korean automobile's revenue increased 27% thanks to the production increase leading to sales increase and the improved mix with more high-margin vehicles sold. The operating margin increased by 139% year-on-year. The finance business increased revenue 16% year-on-year thanks to the strong car sales, but the operating income decreased 33% due to higher interest expense driven by the policy rate increase. Net income increased by 92.4% year-on-year to $3,419.4 billion. Next is revenue breakdown. Sales volume increased thanks to the increased production, had a positive impact on $2,559.8 billion, and the mixed improvement with more ASP cars sold had an impact of $3,135.6 billion. In addition, the February $1-2 rate had a $876 billion impact, increasing revenue by 24.7% year-on-year. Regarding operating profit, the volume increase, thanks to the increased production, had a $757.5 billion impact. Mixed improvement with high-margin cars like Grandeur had a $559.1 billion impact. And the favorable FX rates had a $276.4 billion impact. Despite the operating income fall of some of our finance businesses and increased SG&A costs, OP margin improved 86.3% year-on-year. Q1 cost was 1.3 percentage points, down by 79.6% thanks to the better auto parts supply leading to better operation rates of plants. SG&A was up 7.4% year-on-year to $4,129.3 billion due to increased marketing expenses with new car launches. Non-operating profit increased 185.6% year-on-year to $998.3 billion due to the increase in equity method income and raising key rates. Net income increased 92.4% to $3,419.4 billion thanks to the increased operating income. This is the end of my presentation. Thank you. Next, we will have the Head of Agency Planning and Finance Division, EVP Seo Kang-hyeong, share his share agency's mid- to long-term shareholder return plan and evaluation on Q1 performance and 2022 H1 outlook. Good morning. I am EVP Seo Kang-hyeong, Head of Planning and Finance Division. I'll first start with the mid- to long-term shareholder return policy and evaluation of Q1 performance. In 2023 Q1, HMC saw an increase in sales volume through production. And after announcing our shareholder term policy, we have upped our transparency and we would like to share that with the market. The mid to long term shareholder term policy is to have a transparency shareholder turn to heighten the shareholder turn value and to have a rational dividend policy and to have a long-term share cancellation policy. In the future, we will have a consolidated mix. And compared to the existing dividend policy, the consolidated governance shareholder will be the base of the dividends, heightening the transparency so that we can have more visibility in terms of the dividend payout. Now we'll have a quarterly dividend payout, which has been two times before and will now be expanded to four times so that we can mitigate the changes in the share prices and increase the attractiveness. Finally, for the next three years, Our equity shares will be canceled 1% every year, a total of four years. HMC will continue to expand the shareholder values and become more shareholder friendly so that we can respond to market expectations. Now I'll move on to the business performance for 2020 Q1 as well as the outlook for H2. In 2023 Q1, H&C saw an increase in sales volumes through production expansion, a mixed improvement centering on high-value products, and a favorable exchange rate effect resulting in an operating profit margin of 9.5%, the highest quarterly record that exceeds market consensus. Although there are still concerns about various external uncertainties, our global sales increased by 13% year-on-year, thanks to better parts supply that allows production expansion and solid back-order demand. By region, sales in major markets such as Korea, U.S., and Europe rose by more than double digits year-on-year, improving the regional mix. In particular, sales in the U.S. increased by 30% for wholesales, and SUVs and Genesis sales increased by 28% and 36%, respectively, driving our profitability improvements. Furthermore, Genesis and SUV sales portion increased from 54.5% last year to 55.5% this year. as the improved product mix effect was further realized in Q1, then the continued increase in Genesis and SUV sales and strong sales of the new Grandeur, which was launched at the end of last year. Incentives have increased year-on-year due to the previous year's low base effect, but fell against the previous quarter, maintaining the favorable trend. The $120 exchange rate also exceeded our business plan estimate, which have been forecast at the beginning of the year, acting favorably on our performance. Global EV sales also increased by 48% year-on-year, continuing the sales growth. Sales of IONIQ 5 and 6, which have large back orders, have strengthened due to better chip supply situation, and with the start of Kona EV sales in Q2, EV sales growth is expected to continue. Next is the outlook on 2023 Q2. External uncertainties such as hiking interest rates are still at bay, but solid performance is expected to continue in Q2, backed by strong demand and with Q2 traditionally being a peak season. Although the semiconductor supply issue is not fully resolved, the production plan established at the beginning of the year is expected to be achieved and thus sales increased expected in Q2 thanks to a solid demand. Sales are particularly expected to increase around Genesis and SUVs, which are in high demand, resulting in a continued improvement in product mix. Although there are some concerns on EV sales in the U.S. due to the IRA, we plan to respond actively by pulling forward the local production schedule and by leveraging the provisions for commercial vehicles. Furthermore, with IOTX6 sales beginning, EV sales growth will also continue in Q2. Thank you for your time. Next, SVP Lee Hyung-seok, Head of Hyundai Capital Finance Division, will present on Q1 Financial Business Performance and H1 Outlook. Hello, I'm SVP Lee Hyung-seok, CFO of Hyundai Capital. Please allow me to share with you our Q1 2022 earnings results and H1 Outlook of the financial business. In Q1, unfavorable business conditions persisted, including high interest rates and economic slowdown that had begun last year. However, by working closely together with our affiliates to operate a solid portfolio with mainly auto financing, managing risk proactively, and promoting financial soundness, Hyundai Capital has defended our profitability. Please allow me to elaborate on the earning results by company. First is Hyundai Capital. Thanks to the improved competitiveness of our installment programs driven by HMC's car sales growth and our cooperation with HMC, our assets increased by 4% year-on-year. When the Korean market was experiencing a financial crunch late last year, our competitors reduced their auto financing sales, but Hyundai Capital kept offering captive auto financing on the back of a stable financing capacity. and the auto volume shares exceeded 90% in Q1, solidifying our position as a top captive finance company. This resulted in an operating revenue, an increase of 38% year-on-year, mostly from installment and lease. However, reflecting interest expenses with increasing base rates, and growing bad debt expenses due to growing concerns over an economic slowdown, OP margin was down 29% year-on-year. Korea's top three credit rating agencies upgraded Hyundai Capital's credit rating to AA-plus in March and April. Also, Moody's and Fitch elevated our credit ratings to positive from BAA1 stable and BBB plus stable, respectively. This is acknowledgement of the fact that we are now better aligned with our affiliates as a captive financial company and have an unrivaled position in the market. In H1, unfavorable market conditions are likely to remain. But the company will make our auto financing products more competitive and develop financial solutions for CPO vehicles to fully serve as a captive finance company and will do our best to build stable liquidity and manage credit risks. Next is Hyundai Capital America, HCA. With the increased car sales and penetration, combined with higher ASPs and strong sales of high margin vehicles like Genesis and SUVs, HCA's assets increased 4% year-on-year in Q1. Therefore, the Q1 2023 operating revenue went up 3% year-on-year. But so did the interest expenses and bad debt expenses, with rising interest rates and asset value improvements, which led to higher operating expenses. As a result, net incomes denominated in Korean won went down 26% year-on-year. To minimize the negative impact of uncertain market conditions, H&C increased the prime asset share in the portfolio to 86% to be more financially sound. And it issued 2.5 billion USD worth of global bonds last March with the aim to proactively improve liquidity. And as the company was elevated to be strategically and highly important to Hyundai Motor Group, like Hyundai Capital, Moody's adjusted the Hyundai credit rating from BAA1 stable to positive last February. In 2023 Q1, we have concerns over growing interest expenses with the Fed potentially raising its policy rate again and an economic slowdown and resultantly worsening financial sound blitz. To fend off such risks, HCA will proactively manage risks, mostly for our prime customers, and manage our lending portfolio properly to make the company stronger. Thank you for your time. That is the end of our presentation, and we will now receive questions.

질문을 하실 분은 전화기 버튼의 별표와 1번을 눌러주시기 바랍니다. 질문을 취소하시려면 별표와 2번을 누르시면 됩니다. Now Q&A session will begin. Please press star 1, that is star and 1 if you have any questions. Questions will be taken according to the order you have pressed the number star 1. For cancellation, please press star 2, that is star and 2 on your phone. The first question will be provided by Jinwoo Kim from Korea Investment and Securities. Please go ahead with your question.

Hello. Thank you for your question. First of all, I would like to thank you for the outstanding performance of the company. We are also looking forward to receiving a positive evaluation from the company. I would like to ask two questions. First of all, I think it's a little lower than I thought. The sales revenue has increased by 25%, but the return on investment has increased by 7%, and most of them are marketing costs due to the release of new products. Is the return on investment not increasing as much as the sales revenue, and will this trend continue in the future? The sales revenue is now in the early 10%, is this going to continue in the future, or are you using the return on investment in this quarter? The second question is, good afternoon I have two questions but before that I'd like to congratulate you on the

highest ever first quarter earnings. And also secondly, regarding the treasury stock cancellation, I think it's going to be very positively received by the market. Therefore, I'd like to thank you for that as well. And moving on to my questions, I have two questions. First, regarding the SG&A cost, which was lower than expected. Your revenue went up 25% in the first quarter, but the SG&A cost only 7%. So you also explained it's mostly marketing costs. So I was wondering if this kind of lower SG&A cost expense trend will continue in other quarters as well, or was it kind of an outlier in this quarter? And my second question is about the profitability. The profitability result of this quarter exceeded the company guidance. It was impacted by the favorable FX rates. So I was wondering if this kind of profitability will continue in the second and third quarter as well.

I will answer two questions. As you said, as you know, these days, the parts that we intentionally reduce or increase the cost are already being applied to impossible standards. If you look at the seasonality, the first quarter is compared to the third quarter and the fourth quarter, and the marketing activity is high. It's true that it's a little small, but this year's marketing launches and events were normal, and the cost was normal. However, we didn't have any big issues in the first quarter of this year. So, there wasn't a big issue with the whole cost because there wasn't a big issue with the whole cost. It shows that we were able to reduce the impact of fixed cost, not in proportion to the increase in sales. Then, overall, as the sales of SV sales or large car sales increase, the percentage can actually be reduced, so you can understand that part. Because fixed cost fixed cost is not affected by the sales volume. I think you can understand that.

Yes, thank you for the question. I'm going to answer. I am Seo-kyung Hyun, EPP of Planning and Finance Division. First on your comment on SG&A cost. You know, now it's almost impossible for a company to intentionally increase or decrease the SG&A cost because now we are adhering to the global financial standards. And it is true in the first quarter, there is seasonality to it. So compared to the second and the third quarters, Our marketing and R&D expenses are lower because of the seasonality, but we have implemented our marketing activities as planned. And also one more thing was coming from the provision cost for our quality cost. There was no big spending in terms of quality cost in the first quarter. That's why we didn't spend much provision in this quarter. And so SG&A cost increase was not as high as our revenue increase in this quarter. And all in all, most of our revenues increased because of the increase of the portfolio mix improvement with more large vehicles and SUVs selling more.

And you talked about this year's revenue outlook. We achieved 9.5% in the first quarter with a guide of 6.5% to 7.5%, We also heard that there are some analysts who are a little worried when we announced the guidance of our market last year. Of course, we also see that the first quarter is not connected to the fourth quarter as it is. However, as I said earlier, we can maintain the performance improvement tax until the second and fourth quarters in a short period of time. And on your second question, regarding the guidance for profitability,

The profitability guidance was 6.5% to 7.5% range, and in the first quarter, we achieved the operating profit margin of 9.5%. And when we announced these numbers to the market, some analysts expressed some concerns, saying that it was very ambitious. But we believe in the first quarter we achieved a great performance and we believe that this will continue in the second and the third quarter. This does not necessarily mean that it's gonna continue until the fourth quarter, but still we believe this will, the momentum will continue in the second and the third quarter. The semiconductor supply shortage issues are easing and our productions are good as well as sales as well. Therefore, I believe this good momentum will continue in the second quarter at least.

But at this point, it is difficult to adjust the guidance. Because the inflation rate in the U.S. is still not going down, it is difficult to say that the interest rate rise has stopped now, and the prediction of the overall economic downturn in the second half of the year is not completely gone now. We are looking at the performance of the second half of the second half compared to the first half. If it is a market situation where we can break through, we will break through, but it can be expected that there will be competition or something like that, so I think we need to look at it until the third quarter. Until the third quarter, we will judge the market situation and see if there are any changes

So it is too soon to tell if we need to revise our guidance now because we still have some inflation issues in the U.S. Inflation is not coming down in the U.S. and there is The Fed might increase the rate once again. And also in the second half of this year, there are still looming concerns about the economic recession. Therefore, we are taking more of a conservative look on the outcome in the second half than in the first quarter. So if the economy slows down, that is going to increase more competition in the market. So we are going to wait and see. and see the market situation in the third quarter and see if the guidance needs to be changed. And we'll make the decision by the end of the third quarter.

Next question, please. The following question will be presented by Eunyoung Lim from Samsung Securities. Please go ahead with your question.

Thank you for the opportunity to ask a question. I'd like to ask you two questions. You said that the production will be a little slow this year. In fact, the number of products produced in the first quarter is slightly over the number of domestic sales. How has the stock policy changed compared to before COVID-19? So, as time goes by, if the stock increases, won't it go back to the incentive competition? Of course, I think there will be investors who are concerned. The second is that you mentioned the material cost a little bit. In the case of raw material cost, it was adjusted a lot in the second half of last year, and in particular, the lithium related to the battery was reduced by one-third. Thank you.

I'm from Samsung Securities, and thank you for giving me the opportunity to ask a question. I have two questions, actually. I understand that from your presentation, you mentioned that you're going to expand production for the year by a great amount. So how much of that would have already been done in Q1? Because I understand during COVID, the inventory level is very low. That's why you're able to lower the incentives. However, once the post-COVID period comes and we are now free from COVID, the inventory will stop piling up. So what will happen to the incentives? Will the incentives go up again? So that's my first question. The second question is regarding material costs. In H2, the material cost has dropped drastically, especially regarding the batteries and lithium. It dropped by even one-third. So how do you think the material cost is going to impact this year, and what is the impact for Q1?

Yes, I will answer the first question. Yes, the production slightly exceeded the business value, and the sales and retail sales reached the level of our business value. Mr. Lim, you asked whether we are going to continue to increase production and increase our supply level and go to the initiative economy. Thank you for your concern. However, the current supply level is a supply level that affects sales. We are targeting to maintain about 2.6MOS regionally, but at present, We are focusing on the part that makes sales more comfortable through that level of production increase. As you may be worried, when the stock level increases, of course, we will try to stop the production control and other parts and go to the competitive part.

Thank you for your question, Ms. Lin. So I understand your first question is regarding the productions as well as sales incentives. So you're correct. Our production has exceeded BP levels, whereas wholesale and retail sales is similar to BP levels. And yes, if you do increase productions, you're worried that our inventories will go up and then in the end, we'll begin incentive competition. Thank you for your concerns. However, right now, our stock level, our inventory level is impacting our sales because we don't have enough stock to sell. Usually, we target an MOS of 2.6, but right now, that level is much lower. So, we are going to increase production. However, that is to enable much seamless sales. Of course, if the inventory starts piling up, we will have to control production so that we don't go back to competitive incentive giving.

You asked a question about raw materials. In fact, there is a lot of interest in battery raw materials in the market, but in fact, in addition to battery raw materials, the total sales of raw materials is actually much higher than the current IC engine sales, so it will have an impact. So, including palladium and ruden, lithium, nickel, and cobalt, most of them are going down in general since they reached their high points in the second half of last year. We had a lot of concerns about the raw material itself, but fortunately, after the first quarter of this year, the price is a bit down. Most of the raw materials are going down right now, so we stopped worrying about the rise in material costs, but I have to tell you that the effect of the raw material going down in the first quarter did not come in. You can think of it as not coming in. To answer your second question regarding the material cost, it is true that the market is much interested in the batteries and its material cost.

However, what's more critical for us right now is the catalyst. price because still much of the market proportion is taken by ICE vehicles rather than EV yet. Of course, the lithium, nickel, and coal prices have peaked in H2 and are now going down in general, and many people are concerned about these raw material prices, and it has slightly dipped in Q1. However, we're not as worried as of yet because the drop in the material cost that we're seeing in Q1 is not actually reflected in the prices yet. Usually, the material cost is reflected a quarter later. So the price drop in raw material in Q1 will be reflected in Q2 and afterwards.

. In terms of finance, we actively engage in activities such as catching low-level damage to metal, so in the long term, we are making strategic decisions on the management and strengthening of upstream for additional security or something like that. We know that there are concerns in the market about that part, and we are also

We're not going to be complacent with the drop in the raw material prices in the short term because we have now learned that we are very vulnerable to the price increase, and this is a big risk for us. So at this time, we're trying to take preemptive offtake action through procurement and also look into precious metal industry as well through finance. And in the mid to long term, we're going to be involved in the upstream of the raw material industries by managing and strengthening our capacity there. So that is all part of our strategic decision making. We are fully aware that the market is concerned about this. And we are making strategic decisions regarding this matter. So once something is filled up and we see something visible, we will share that with the market as well.

Next question, please. The following question will be presented by Theodorus Hadiwijaja from JPMorgan Asset Management. Please go ahead with your question.

Hi, yeah, thank you very much for taking my questions. I have two questions. So the first one is in regards to the shareholder return policy. So you mentioned that you are changing to payout ratio 25% or above. Is that based on free cash flow or net income? And I guess with this, how does it tie to your credit ratings? Now you're on positive outlook. Are you intending to have your ratings at the same level or upgraded to single A category? And the second question I have is on the recent announcement on the battery in the US. So how will that impact your CapEx plan for this year or maybe the next couple of years?

Thank you for the question. I have two questions. It is a policy related to the mid-term, weekly, and monthly payment policies. You said that it is more than 25%, is it based on free cash flow or net income? And I wonder if you expect a change in the credit rating by adjusting it like this. That's the first question. The second question is about the battery joint venture established in the United States. Due to this battery joint venture, I wonder how the CapEx plan will be in the next few years.

This is John Koo. Thank you for your question. Your first question is on the shareholder return policy. It is actually based on the net income rather than the free cash flow, so we have revised that from our free cash flow payout of 30% to 50% to net income payout of 25% or above. In terms of the credit rating, I mean, I guess it is, we hope that the rating agencies will upgrade our ratings, but it depends on their policy rather than what will be our policy, I guess, in general. And to your second question.

Yes, my question is for Mr. Gu. First of all, I would like to answer the first question. The 25% of the mid-term stock exchange policy In the past, it was 30% to 50% of the free cash flow. Now, we have changed it to 25% or more based on the short-term standard. And the second part of the first question is about credit rating. In our case, we expect Sinpyeongsa to raise the credit rating, but we don't decide it on our own. We think it depends on the policy of Sinpyeongsa.

Okay, and your second question on the battery joint venture, whether the CapEx will have any impact on the CapEx overall. As you have seen from the announcement, the total investment on the joint venture will be approximately 5 billion US dollars, which is about 6.5 trillion won, which Hyundai Motor Group will own 50% and the remainder will be SK. But in general, you may recall that about a year or two years ago, actually, we announced the plans overall in the U.S. investment plans of about $10 billion. So this is actually included in that. So the overall capex that we had announced earlier has not changed dramatically. So it is pretty much in line with what you have seen in the past. Thank you.

Yes, and I will answer the second question. Battery Joint Venture a little 다른 캐펙스 임팩트에 대해서 물어 질문 주셨는데요. 저희가 이번에 배터리 조인트 벤처에 하는 총 투자액이 50억 US 달러 정도입니다. 하나로는 6조 5천억 원 정도 되는 수준인데요. 이 투자를 통해서 현대자동차 그룹과 SK가 50대 50 지분을 보유하게 되고요. 저희가 2년 전에 미국의 투자 계획, Next question, please.

The following question will be presented by Jae-Hyung Oh from Kium Investment and Securities. Please go ahead with your question.

Hello, can you hear me? Yes, we can hear you well. Thank you for the question. I will ask two questions. First, I am curious about the current production trend in April. And I am also curious about the production prospect in May. You can compare it with March and compare it with the entire first quarter. I'm curious about the production trend. Secondly, in February, we paid 4 million won for the performance of Hyundai and Kia cars in the first quarter and 10 weeks for Hyundai cars. How was the cost treatment? I wonder if it was all done this quarter or not.

Thank you. Hi, thank you for the opportunity. I have also two questions. My first question is regarding production. So what is the production trend in April? You can compare it and also the outlook for May. You could compare it with the March productions or with Q1, whatever it may be. I'm just wondering what the production trend for this month is. My second question is I understand that in February, you gave out special bonus payouts to Hyundai and Kia employees of 4 million KRW and 10 shares. So, was this expense covered in Q1 or is this going to be settled in installment?

Yes, this is Director Seo. The April production trend is 100% achieved. The second quarter, including May, is what I discussed with the production side today. We are judging that we will be able to achieve all the business plans. As I said earlier, our first quarter production was about 99% achieved. The semiconductor issue related to production is still a little international, but the level of our production to affect

To answer your first question, the production for April we believe will reach 100% of our business plan and also for Q2 including May, I had talks with the manufacturing today and we believe it will also be close to the BP level. The Q1 production was close to 100%, 99%, however the chip Supply issues, although it's not fully resolved, it's not that serious enough to impact our production.

The second question is about the special cost of production. We answered the first question about the cost of production, but through the negotiation with Gamsahin, we thought that it would be better not to process it over a year rather than a temporary cost.

As for the second question, I think it's pretty similar to the first question regarding the SPNA. We consulted with our auditor on how to resonate this in terms of accounting, and rather than making it a lump sum payment, we got advice that it's better to divide it out throughout the year for 12 months.

Next question, please. The following question will be presented by Kyungjae Hwang from Merrill Lynch Securities. Please go ahead with your question.

Hello, I'm Kyungjae Hwang from Merrill Lynch Securities. I would like to ask if there are any companies If you could tell us, what was the number? In the case of the margin rate, if you look at the last quarter, it was dramatically improved by double digits, and I remember it as what led us to a good result. I would like to ask if you can share the numbers in this situation. In addition, I would like to ask you how the handover of our major overseas markets was, including the United States. Thank you.

I have two questions. First of all, my first question is about the profitability of the Korean plants only. I believe in the first quarter, the plants and revenues grow double-digit growth. And then I was wondering how much the Korean plant contributed to the profit. And second question is about the contributions of each region, including the U.S. and other key markets.

Yes, this is Mr. Sung-hyun. It is a little difficult to reveal at this point, but I can tell you that the profit and loss ratio is stable overall. However, it is difficult to see it together based on the overall connection with the separate business profit and loss ratio in Korea. On your first question, it's hard for me to disclose individual margins by each region.

I can only tell you that our overall profitabilities across all regions are quite stable, and it's hard to really consolidate every profitability from every other region compared to Korea because of the different accounting standards and so on. And also how we calculate loyalty payment and other elements are different in Korea from other markets as well. So I think that's the question that you have to ask to our IR team so that you can get the information separately. Thank you.

Next question, please.

The next question is from Kim Pyongmo of DB Financial Investment. The following question will be presented by Pyongmo Kim from DB Financial Investment. Please go ahead with your question.

Hello, I'm Pyongmo Kim from DB Financial Investment. I would like to ask a question related to the IRA. You said that the battery JV you announced today will start production in the second half of 2025. Then, I think it will be produced in earnest from 2026. Before that, we have to export the battery in Korea or respond in another way. I'm curious about the specific plan. The reason I asked this question is that in the case of GB70, because of the battery issue, it was excluded from the federal tax credit support, so I'm curious if there is a way for us to receive this subsidy again before that.

Thank you for the opportunity. My question is regarding the IRA. You said that you're going to build a battery JV and to begin production in the second half of 2025. However, once you get the yield running and once it's to full production, I guess the full running of the productions will be possible by 2026. So before that time, you'll have to source the batteries, maybe by exporting it from Korea or so. The reason that I ask this question is because recently GV70 was not able to receive the subsidies of the IRA because of the battery issue. So what is the plan regarding battery sourcing prior to the production of battery JV?

Yes, I will answer that question. Regarding the IRA, the market has a lot of interest in it, and we are also a company that can influence the electric vehicle sales in North America. We are taking care of it with interest. At this point, we don't have the car weight, which is already revealed in the media. However, if we use HCA to increase the cost of lease vehicles, HCA will make a profit and pay for it. we are able to receive tax returns equally as individuals, so we have already expanded the risk ratio of less than 5% to 35% in March, and we are already implementing it as a part that does not affect sales. As you have just asked, we passed SKJV on Friday and announced it, and that part will be produced from 2025, We are going to produce the actual cars from 25 years. Of course, it may be difficult to supply depending on the rate, but the production volume is about 35 giga at first. Because we don't have enough capacity to turn the full capa, we don't have a production plan, so we're going to produce the cars produced in 25 years. We expect that HMGMA will be able to provide enough supply to the new electric vehicle factory, the Alabama factory, and the Kia Georgia factory. Of course, we expect that all the produced vehicles will receive benefits from the IRA in about 2026, so the previous years will gradually increase the benefits. And as I said before, the part that slows down the lease of HCA as much as possible, and even that part, as you know, the part like World Car of the Year was received by IONIQ 6, and last year, IONIQ 5 received it, and even though we are exposed to such incentive competition than we thought, the sales of electric vehicles are not decreasing at the moment. The part where we increase branding and sell it, If the situation is delayed again in the competition in 2024-2025, the part that corresponds to the electric vehicle in the overall sales will be a part that can strengthen the incentive. We will do various things according to the market situation, and what I am clearly telling you is that the rest of the SUVs and Genesis sales, other than electric vehicles, are taking up a lot of portions, so I will tell you once again that the impact of ILA is not as big as you are worried about.

I do understand that the market has a keen interest in how IRA is going to impact us. And we also are very new to the situation because it impacts how we sell EVs in NA. So we are paying big attention to how we incorporate this into our management decisions. And it's already been opened through the press that none of our models are subject to these incentives of the IRA. However, we are trying to get that subsidies through the use of commercial vehicles. So through HCA, Hyundai Capital America, if we lease our vehicles, that tax benefits will go to the company and in turn to the end users as well. The lease proportion in the US has been only 5%, but we have now pulled this up to 35% as of March. And as a result, the overall sales will not be impacted negatively. And the establishment of the battery joint venture with SK has been approved by the board this morning. And once it goes into full production by 2025, we'll also begin the production of vehicles that are subject to these batteries and also the IRA subsidies. And once we have the yield on a full range, of course, our sourcing might also get better. The thing is, the JV that is in plan, the full capacity of 35 gigawatts, And it's more than enough of the production volume that we have planned for the U.S. So the plans that we have in HGM&A, Georgia, Alabama, all of their production plans for 2025 is not going to exceed the 35 gigawatts. So even if the battery is started to produce in the U.S., there's not going to be a sourcing issue. For all of our models produced in the U.S. to be subject to IRNA tax credits, we believe it will be possible by 2026. Until then, we are gradually making plans to get other benefits, such as what we are doing with HCAID releasing. And the other gaps that exist, we are trying to fill it with the branding of our cars. For example, IONIQ 5 and 6, they won various awards, including the World Car of the Year. And if necessary, we will also try to strengthen our brand. The incentive may seem like a key competition factor, but it actually is not because our EV sales have not gone down. We are actually backed by our strong brand. So from 2024 to 2025, when the tax credit actually comes into effect and the competition gets fiercer, Maybe we might have to strengthen our incentives just for EVs. Who knows? But we have everything planned so that we do not lag behind in terms of competition. And it's not just EVs that we sell in the U.S. We have most of the sales that are centered on SUVs and Genesis as well. So the IRA impact is not as big as everybody is worried about. Due to the lack of time, we will now receive one last question.

Thank you for your time.

I just want to ask the first thing is about the margin of the EV product. I think you have a kind of a long-term vision to get to 10% of OP margin for the EV. I wonder how does that look like mean in a quarter roughly you know and also how do you face the competition with other eb players cutting price with kind of lower cost battery etc how does that impact your plan in the long term or mid-term and that's one and the other one will be you can saw the treasure share but in fact that doesn't impact the net outstanding shares i wonder if you have any plan to use part of the cash to buy back shares, so that's actually really reduced the outstanding shares. Thank you.

Yes, I have two questions. The first one is about EV, the EV margin. You are planning to have a long-term operating profit margin of 10%. Oh. The second question is, you have announced a 4-week discount, but I understand that the number of Net Outstanding Shares cannot actually change. Is it possible to use cash to buyback and actually do a 4-week discount?

Yeah. Hi. Thank you for your question. This is . To your first question on the margins of EVs, as you have pointed out, we have indicated a long-term OP margin of achieving about 10% on our EVs. That is correct. However, we cannot actually give out the actual numbers right now, but what we can say is that we are currently making a profit on our EVs.

Yes. The first question is about the EV margin. The second part of your question was, I guess, on the competition.

Yes, there is a lot of competition, especially from the Chinese players. However, as we had pointed out earlier, we believe that our products are much more competitive based on the awards that we have received, and we believe that consumers will select us over competitors based on these merits and the overall characteristics of our vehicles.

The second question is about competition. It is true that competition is intensifying from OEMs in China. However, we believe that our products are much more competitive. And your second question was on the buyback.

Again, we cannot announce anything at this time, but nevertheless, as you have seen in the past, we have I've been always looking at various options, including share buyback and cancellation. And in a period when we do that, we will actually be letting you know. However, of course, buybacks and cancellations will depend on the share price, et cetera. So if we do believe we are undervalued, then we will definitely try to share buyback. But at this time, we have no current plans.

The second question is about buyback and self-sale. Currently, we don't have any plans to announce it. As you know, we've always been looking at it as an option, whether it's a self-sale or a buyback. Currently, we don't have any plans to announce it, but I think this decision was made depending on the stock price. Thank you. We would like to end the conference call for HMC's 2023 First Quarter Business Results. Thank you for your time.