Hyundai Motor Co

Hello, this is Michael from IR team. Welcome everyone to HMC's second quarter 2023 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 Q2 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. First is sales summary. Our Q2 global wholesale increased by 8.5% year-on-year to 1,059,713 units, while retail sales increased by 8.1% year-on-year to 1,065,397 units. In the second quarter, our wholesale increased due to the production increase as parts supply situation improved and strong fat odors. In domestic market, sales increased by 13% year-on-year due to increased sales of high margin models and SUVs such as the all-new Grandeur which was launched in the fourth quarter last year and the all-new Kona which was launched in the first quarter this year. In North America, strong sales continued led by SUVs and Genesis resulting in wholesale sales increased by 12% year-on-year. In the U.S. market, sales of SUVs have increased by 7% year-on-year with Tucson and Santa Fe. EV sales in the U.S. increased by 134% year-on-year thanks to IONIQ 6 with utilizing lease and fleet program due to IRA. These factors resulted in an all-time high second quarter sales record with a 5.5% of market share. In Europe, wholesale increased by 9.5% year-on-year due to sales growth of eco-friendly vehicles with IONIQ 6 and the launch of the all-new Kona Hybrid. In India, wholesale increased by 9.2% year-on-year as parts supply situation gradually improved. We expect to expand sales in the second half and continue to enhance SUV competitiveness with the launch of Micro SUV Xter in July, which was already received positive reaction from the Indian market. Next is sales by model and key status. In Q2 2023, global sales volume has increased year on year in most segments due to increased production. Global SUV sales have increased by 0.4 percentage point year-on-year to 52.8% due to the all-new Kona and solid sales of our flagship models such as Tucson, Santa Fe, and Creta. Vanessa's wholesale in the second quarter increased by 0.5 percentage point year-on-year to 5.9% due to continued strong sales of existing flagship models such as GV70 and GV90 in North America and domestic market. Sales of eco-friendly vehicles increased 49% year-on-year with the increased sales of EVs and HEVs. Especially continuous strong sales of IONIQ 5 and global sales of IONIQ 6 increased global EV portion by 1.9 percentage point to 7.4%. and resulted in an increase of by 47% year-on-year in Q2. Global hybrid portion increased 3.0 percentage point year-on-year to 9.1%, with strong sales of the all-new Grandeur and Kona Hybrid. While we continue our efforts to expand EV sales through global launch of the IONIQ 6, and with the launch of the all-new Kona EV, We plan to further improve product mix by expanding high-value models with the all-new Santa Fe, which is scheduled to be launched in the second half. More details of sales information for major markets such as Korea, the US, and Europe are provided in the appendix page 11. That is the end of the presentation on sales, and now I'll move on to P&L. This is the income statement. Consolidated revenue increased by 17.4% year-on-year to 42 trillion 249.7 billion Korean won, and operating income increased by 42.2% year-on-year to 4 trillion 237.9 billion Korean won. The automotive division revenue increased 19% year-on-year with volume increase from higher production, mixed improvement with high margin vehicles, and price increase in some regions. The operating profit margin increased by 55% year-on-year. Finance division revenue increased by 6% year-on-year due to the strong sales, but the operating income decreased 30% as higher interest expenses driven by the higher interest rate impacted regions. Net income increased by 8.5% year-on-year to 3,346.8 billion KRW. Next is revenue breakdown. Volume increase from production recovery had an impact of 2 trillion 341.2 billion KRW, and the mixed improvement with more high-value models had an impact of 1 trillion 852.5 billion KRW. In addition, February 1-2 U.S. dollar rate had a 1 trillion 68.5 billion KRW impact, increasing revenue 17.4% year-on-year. operating profit, the volume increase thanks to the production recovery had a 500 billion Korean won impact. Mixed improvement with higher margin vehicles like Genesis had a 201.2 billion Korean won impact. Despite the impact of some incentive cost increase from last year's basis, the favorable Forex rate had a 682.3 billion Korean won impact. Even with The decrease of finance division and increased SG&A cost, OP margin increased by 42.2% year-on-year. Cost of goods sold ratio decreased by 0.4 percentage points to 79% due to increase of utilization rate and favorable Forex. SG&A increased by 5.3% year-on-year to 4,655.5 billion Korean won due to increase of marketing expense and R&D cost. Non-operating income decreased by 34.4 percent year-on-year to 596.4 billion Korean won. Net income increased by 8.5 percent year-on-year to 3,346.8 billion Korean won due to increase of the margin. This is the end of our Q2 2023 business results. Thank you. Now, EVP Kang Hyun-seo, Head of HMS Planning and Finance Division, will share updates on our annual guidance. Good afternoon, I am EUP Kang Yeon-seo, Health Planning and Finance Division. When the company announced the annual guidance early this year, there were some concerns due to the potential economic slowdown, Forex rate change, demand reduction, and intensifying competition. Still, in the first quarter, we posted operating profit of 3.6 trillion and OP margin of 9.5%. In this quarter, the company achieved operating profit of 4.2 trillion and OP margin of 10%. As we have achieved our earnings beating market expectations as well as our initial outlook in the first half, we'd like to give an updated full year guidance for investors and analysts based on the second half outlook and target. Regarding wholesale, there are still macroeconomic concerns over a potential economic slowdown. However, reflecting the better-than-expected market demand and stronger volume driven by production normalization, the company will keep the initial sales guidance of $4.32 million announced early this year. Regarding profit guidance, the initial guidance for revenue and OP margin was 10.5% to 11.5% and 6.5% to 7.5% respectively. However, considering the continuous ASP growth, production and region mix improvement, and favorable Forex rate, we'd like to update our guidance and raise our year-on-year revenue growth and OP margin forecast by 3.5 percentage point and 1.5 percentage point to the range of 14% to 15% and 9% to 8% respectively. Regarding investment, In line with our aggressive electrification plans announced at the CEO Investor Day last month, the $10.5 trillion investment plan will be executed. The initial free cash flow guidance of $3 to $4.5 trillion remains the same, too. Regarding our shareholder return policy, the company announced a new set of shareholder return policies to improve shareholder value. As part of the policy, the company set the dividend payout ratio of 25% or higher of its consolidated net profit to improve dividend transparency and visibility. Also, the company will pay dividend every quarter instead of twice a year and cancel 1% of its treasury stock every year for the next three years in an effort to significantly boost shareholder returns. The company will endeavor to achieving yet another good result and prioritize shareholder returns to achieve revised full-year guidance including higher profit numbers. For details, please see the updated guidance posted on the company's website. That's all on the annual guidance. Thank you. And again, EVP Kang Yeon Seo will provide us with the second quarter result and the outlook for the second half. Yes, I'm Kang Yeon Seo. Following the great results in Q1, in Q2, thanks to the sales volume increase driven by robust demand, mixed improvement with higher ASV models including SCV and Genesis, and the impact of favorable FX rate continued, and the company posted consolidated OP margin of 10%. Interest rate hikes, inflation, and other macroeconomic uncertainties were looming, which raised concerns over global vehicle demand, but the demand is strong globally across major markets including the US, Europe, and India. On such demand, our global sales went up 8.5% year-on-year. Our product mix has been steadily improving too. The share of SUV globally posted 52.8%, indicating consistent growth, and Genesis and EV sales too were 5.9% and 7.4% respectively, showing a clear upward trend. Our EV sales in particular soared by 47% to 7.4% year on year, despite the IRA and intensifying competition. As a result, our Q2 global ASV increased 5.9% year on year, contributing to higher profitability. Let me now share the outlook on the second half. With global OEMs production returning back to normal, many are worried about potentially more severe competition. In fact, the average incentive spendings of OEMs in the US are globally increasing, but still capped at around 50% compared to pre-COVID levels. And as global inventory is only 0.3 months, incentives will remain stable for the foreseeable future. With a solid demand in key markets and launch of new models including Santa Fe and IONIQ 5N in the second half, the company is expected to continue to stable results for the remaining period of this year. Having said that, Fed might raise rates again and $1 exchange rate might change. So, macro conditions will remain uncertain. The company will focus our efforts on flexibly managing changing demand in order to stabilize our profits. For the EV market in particular, we are seeing price cuts aggravating competition and factors posing a risk to our EV strategy, including different charging standards. However, as we have announced at the recent CEO Investor Day, we'll utilize our unique Hyundai Motorway in the form of flexible production and a modular architecture to continue to expand our footprint and presence in the US EV market. Lastly, allow me to share our dividend payout plan for this quarter. As explained during the last quarterly earnings call, we plan to pay quarterly dividends in Q2 and maintain an annual dividend payment ratio of 25% or higher accordingly. Given HMC's improved performance and commitment to better shareholder return, the dividend for Q2 has been decided at 1,500 Korean won per common share. Thank you. We'll hear from Hyung Sung Lee, head of the Planning and Finance Division of Hyundai Capital. Good afternoon. I am Hyung Sung Lee, head of Planning and Finance Division of Hyundai Capital. Allow me to report our Q2 2023 business results and outlook for the second half. With high interest rates persisting to delay economic recovery and regulations tightening, Along with other internal and external uncertainties, the finance business has benefited from increased car sales with normalizing supply situation, proactive risk management, and excellent liquidity management capability, all leading to a competitive advantage despite challenging circumstances. In the later half of this year, we'll further leverage our competitiveness as HMG's captive finance company and execute a well-balanced strategy that addresses both external and profit growth. Details of the company are as follows. First, Hyundai Capital. Boosted by strong HMG sales and enhanced partnership with other grill affiliates, the penetration rate has been rising, resulting in financial assets growing 3% year on year. Despite unfavorable financing conditions, such as the capital market crunch continuing from late last year, the company has leveraged its strong liquidity management capability to increase auto financing volume now accounting for 80% of our asset portfolio. As a result, cumulative operating profit grew 13% year on year, led by growing retail and lease sales. In terms of cost, interest expenses rose due to continued high interest rates, but we were able to upgrade our credit rating to AA+, and diversified funding sources to minimize the increase. Moreover, the cost of bad debts increased due to concerns over economic slowdown, resulting in a 13% drop in operating margin year on year. However, our preemptive risk management efforts led to a delinquency rate below 1%, indicating very strong soundness. While we expect uncertainties such as macroeconomic downward pressure in the second half of 2023, Hyundai Capital will continue to operate a profitable asset portfolio based on auto loans, manage risks preemptively, and secure stable liquidity in preparation for financial market volatility. Furthermore, in support of HMC's upcoming certified pre-owned vehicle business, we'll enhance financing for used cars and add new operations for greater global finance coverage in order to strengthen our role as a captive finance company. Next is Hyundai Capital America, or HCA. In the U.S. market, our business continued to grow on the back of strong automotive sales and a penetration rate, pushing up the cumulative sales volume for the first time by 34% year-on-year. In addition, Genesis and SUVs helped improve the sales mix and contributed to a higher average selling price, including financial assets by 6% year-on-year. With stronger volume, loan sales drove a 5% increase in operating margin year-on-year. However, but continued interest hikes raised the interest and bad debt costs significantly, driving up operating costs as well. Further compounded by negative phase effect, Operating profit fell nearly 50% year-on-year. Next is our outlook for the second half of this year. While rising cost of interest and bad debt and weakening used car prices are a possibility, HAC has been mitigating such risks by elevating the prime share to 86% for financial solidness. In March and June, the company also issued global bonds worth a total of $5.5 billion in a proactive effort to secure liquidity. Moreover, HSAC will align even more closely with HMG sales strategy and expand access to secure profitability while continuing to manage soundness proactively and improve operation efficiency to defend our profits continuously. That's all on my side. Thank you for your attention.

Now, training session will begin. Please press Start 1, that is, star and 1, if you have any questions. Questions will be taken according to the order you pressed, star and number 1. For cancellation, please press Start 2, that is, star and 2, on your phone. The first question will be presented by Junseong Kim from Merits. Please go ahead with your question.

Hello, I'm Junseong Kim from Merits. I would like to ask a simple question about performance and delivery. In terms of sales, there have been a lot of sales in the past compared to the past, other than car finance. Please tell us why. And if you look at the profits other than sales, it seems that there was a lot of cost on the other side, except for finance and spending laws. I would like to ask for some reasons for this. And lastly, you announced 1,500 won this time, and now our profit guidance has been provided by sales growth and sales interest rate. If this number comes out, If the dividend in the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half

Thank you. I am from Merit. So my question is regarding the dividend payout and the performance. Regarding the operating profits, apart from the auto results, I see there's a lot of increase in terms of the other areas. So what is the reason behind this? And it seems that for non-operating profits, you're also seeing a lot of growth in others regarding apart from finance and other joint ventures and etc. The third question is regarding dividend. For the second quarter, you said to 1,500 Korean won. And based on the annual guidance, he says that this dividend payout is going to be based on your operating margin as well as the gross earnings. So assuming that the non-operating profit will not change significantly in the future, and if you are to keep with the guidance of 25% of your operating profit for the second half during the payout, what do you believe is going to be the dividend side for Q3 and Q4 coming forward?

Yes, this is Director Seo. I will answer your question. As for the other areas of sales, we are working with HT, which is a company that sells trailers in Jeju Island in the U.S. The U.S. economy is maintaining the trailer market better than we expected. The market is improving a lot compared to last year, and as you know, Rotem, one of the link targets, has recently improved because of the increase in the number of currencies. The reason for the increase in the cost of other parts of the business is that it is affected by the evaluation of assets that are happening temporarily and temporarily, so I will explain the details later through ILP. In the second half of the year, we raised the amount immediately. The reason why we raised the share price to 1,500 won is that considering the share price, we will maintain the guidance based on the 25% of the promised share price, so considering the increase in profit on that basis, we will make a share price of about 1,500 won, Then, we want to maintain the concept that we can decide by checking the actual performance of the 25% guidance for the entire year, so we plan to consider the consistency of our policy in the third quarter and the fourth quarter of the first 1,500 won, and then we will decide.

Thank you for your question. I am So your first question regarding the operating profit, the other part, this is based on the consolidated sheet. So all the utilities that we have, we have a company called HT, which is responsible for manufacturing and selling trailers in the US. And the US economy right now is pretty good, not only the automobile market, but also the trailer market. So that played a big part as well. So that's why we had a better number than the previous year. We also have another affiliate called the Hyundai Rodents. So recently they had good sales return of the military goods. So I'm sure that also played a big part as well. To answer your second question for the non-operating profit, the other part, I believe that this is more of a one-time and short-term effect due to the positive feedback and valuation on our company. As for the further detail, please check the IR homepage regarding that. To answer your third question, whether this dividend payout ratio will continue in Q3 and Q4, well, the reason that we set the quarterly dividend payout to $1,500 for Q2 was to ensure that we are consistent and keep our promise of a qualitative payout on an annual basis of 25%. And of course, by the end of the year, we'll have to see what our overall earnings and performance is to see if we are to keep our word of 25%. However, we believe that as of now, starting at 1,501 is good enough. And depending on what the results will be for Q2 and Q4, we will pretty much adjust the levels later on. Next question, please.

The next question will be presented by Yuncheol Shin from Kiwoom Securities. Please go ahead with your question.

Hello, I'm Yuncheol Shin from Kiwoom Securities. Thank you for the opportunity to ask a question. As you improve the guidance on operating costs, I would like to ask if there are any changes in the process of cost factors compared to the existing guidance. How much was there? If you can give me a few examples, please share them with me. Recently, there has been a trend in which Hyundai cars are also affected by incentives, depending on the current business average. At the end of the year, is there a calculation on how many dollars you can defend? Or is there a change in the process of payment? Please tell me in general. Thank you.

Thank you. I am from KM Security. Thank you for the opportunity to ask you the question. My question is regarding the raised operating profit margin guidance. So before, compared to the guidance before, you raised the operating margin, operating profit margin guidance. So I was wondering how much impact of, how much is attributable to the cost element? Can you maybe take some representative examples attributing to the raised OP margin guidance. For example, I believe incentive spendings are on the increase in the U.S. So I was wondering how much incentive spending do you believe will be showing in the U.S. market by the end of this year, and how much forex impact will be there?

Yes, this is Mr. Sung. I will answer your question. Incentive is based on the opinions of each district and district departments based on the opinions of the district departments competing in the actual market. That level is about the level of planning that we set up in the beginning of the year. It's a little higher than the first half of the year, but it's still a level that we can manage in the planning. Thank you for the question. I will repeat.

The incentives in the second half will be different by region, but we are receiving feedback and opinions from our overseas operations who are actually in the markets by region. Therefore, we believe the incentive allowance by the end of this year will be the similar as we had initially estimated in the early this year. So, incentive spending will be higher in the second half than in the first half. but still will be within the range that's still manageable by us. And regarding the exchange rate, we believe it's going to be around 1 to 60 to 1 to 70. So this is lower than the actual Forex numbers in the first half, but still, this is within the range that we are expecting. But considering the incentives and the Forex outlook, we have raised our guidance on the OP margin.

Next question, please. The next question will be presented by Yongmin Kim from CGS CIMB Securities. Please go ahead with your question.

Yes, hello. I'm Yongmin Kim from CIMB Securities. Thank you for the question. First of all, this year's second half and next year's first half, our volume has been rising since last year, I believe that the supply of raw materials in the second half of the year will also maintain a normal trend, but I believe that there are concerns in the market that the mix can worsen in the first half of the year, not only in the second half of this year, and as you said before, there are concerns about the increase in incentives. In my opinion, do you think that the mix improvement tax, which has been applied so far from the point of view of organic growth, can continue to rise in the future? Or is it possible that the market demand will deteriorate and the pent-up demand will drop, I'm curious about whether you think there will be an inevitable recovery rate for low-income cars. And one more question. I think it's time for the demand to decrease in our industry and the macro uncertainty that you mentioned earlier. I'd like to ask you about the financial stability department. Especially now that we're including financial institutions and the previous law is not public, I think it's difficult to determine the limited financial value in the car department. If possible, I would like to ask you to talk about the stock ratio of the company's car, except for the financial part, and how you are preparing for this macro risk in terms of financial stability. I'm curious if the investment plan of 10.9 trillion won, which was updated by Investor Day recently, and the stock exchange policy, which was raised by more than 25%, will be changed in the future due to financial stability issues due to these risks. Thank you.

Thank you for the opportunity. I am Kim Yong-min of CGS EIMB Security. So my question is regarding the future in H2 and maybe H1 of next year because we believe that the volume will go up and I think in H2 the resources pricing will be somewhat streamlined. However, the market is still concerned about maybe H1 of next year that they will be issued, for example, incentives going up. Do you believe that these expenses will continue maybe? And the market demand is also kind of being sluggish right now. So we believe that with the incentives going up and the mix being deteriorated, will the sales of low profitable models recover anytime soon? Furthermore, the demand within the industry is also slowing down, and with the macroeconomic situation not getting any better, I also have a question regarding your financial establishment. Because your earnings include the financial assets results as well. So it's very difficult to see what the actual performance is just for the automobile industry and the business alone. So could you tell us what the P&L is and the borrowing situation for just the automobile business alone? And do you think that this will be, and what the debt ratio will be? And will your current plan regarding the future investment plan for the upcoming 10 years, as well as the shareholder return policy of 25%, will that maybe boom around back to you as risking and endangering your financial summit?

Yes, this is Mr. Sung.

First of all, I would like to answer the first question. As I saw in the report I saw recently, the rate of rapid decline in the second half of the U.S. economy is much lower than last year's end or this year's first quarter. It is true that last year's end or the beginning of the year, the macro environment was rapidly deteriorating. However, in fact, in the actual car sales, such a part does not appear so much, and we communicate a lot with the dealers who are selling cars at the site, but I think that the macro is updated a lot. It is true that I have a little bit of confidence in considering that. However, we do not put tension on the fact that the macro situation is not getting better and the competition situation is getting worse, and we are responding to that part with various scenarios. However, as you said, if the situation of the game is not getting better and the macro side is in danger, the sales of low-income cars will increase again, right? You asked the question, but the part that Hyundai Motor Company is making profit now is It's not just that the market is getting better and the profit is getting better and the ASP is increasing. As you know, we have entered into a high-end brand genesis and have been selling more than 200,000 units for a short period of time. We are taking a stand in Korea and the United States, and we are making an effort to secure the European market, including the general region. Then, the parts that have been transferred to SUVs, such as Palisade, Santa Fe, Tucson, etc., strengthen the line-up of SUVs that are making a profit overall, and I think that they are making a profit because they are making a profit on that part. Based on that part, even if the macro of the game is a little less, Thank you for your question. I'm Romeo.

So I'll answer your first question. Yes, there were concerns that the macroeconomy will worsen in the second half. However, the recent reports by many renowned and famous economists in the U.S. sense that the outlook for H2 has actually gone better compared to what it has been in the previous year. So I believe, and we are also pretty prepared for a worsening of the economic situation. So I don't believe that such deterioration in terms of the economy is shown evidently in our card sales, and also the outlook is getting better as well. And we believe that we are fully prepared to make a soft landing if the macroeconomy does deteriorate, and we are pretty confident with that as well. And we still will be prepared for any economic crisis or macroeconomy from slowing down. However, we don't believe that with the economy slowing down, all the sales will then be focused in our low-profit model because our current level of profit and our ASP has not gone up just because the market situation has improved. We have sold more than 200,000 units of Genesis, our luxury brand. Within a very short term, we were able to settle down in the market, not in Korea but also in the U.S. as well, and we're also making a lot of effort to make our presence strong in the rest of the world, including the European market. So, along with that, we are also changing our model mix to be more focused on SUVs, for example, Palisades, Tucson, and Sassafay. These are very high-profit models, and we are mixing a line so that we are able to sell more high-profit models. And as a result, we were able to see an OP rate of 10%. So all in all, even if the macroeconomy does deteriorate, we don't believe that our sales will go back to low-profit models specifically, and we believe that our sales will be somewhat good despite any of the crisis that would come.

Yes, I will answer the second question. As you know, we have received such questions from our financial statements. As you know, in our financial statements, there are financial statements such as HCA, Hyundai Capital HCS, and Hyundai Card, so there are a lot of bonds. We report that the second quarter bond ratio is also 178.5%. In fact, more than 100 stocks are in the financial sector, and as you know, the stocks in the financial stocks, the assets in the financial stocks, are matched with the part that issued the financial stocks to the customers in the sales finance. In fact, we need to separate that part and look at it, but right now, there are financial companies in the connecting financial statements that we are publicizing as the main financial statements, There are some articles about the increase in the number of Hyundai cars. You may be worried about this, but if you actually divide it into more than 100 areas and separate it only for the car department, you can see it in the separate financial statements focused on the headquarters that we are also publicizing. If you do the car department, the overseas part will come in more. In general, it is true that it maintains a bond ratio of about 70%. Then, isn't the financial part risky? Of course, as Mr. Lee said earlier, the financial assets of HCA and HCS are separate, and Hyundai Capital is investing in financial assets every month and increasing sales in that way. The presentation rate in the U.S. has increased, and there is a increase in halved bond assets. According to this, there is a increase in debt as a result of capital investment, but in fact, the customer ratio below the subprime, which can manage safety, such as the rate of election and the rate of retirement, is much lower than the market average, so we don't need to worry about it. And I'll continue with answering your second question.

Yes, and this demand may be going down, and we are getting a lot of questions because our financial sheet is completed. And like you said, it includes our financial affiliates like HCA, HCS, as well as Hyundai Cars. And that's why the debt rate for Q2 is 175%, and the debt itself is over $1,000 trillion. However, this is also closely mapped out with some of the bonds and loans that are made by these financial companies. So if you just try to look at the debt rate of HMC alone, it's less than 50%. And if you look at some of the exposure that we have made, just for the auto business part, you can see that that rate is less than 50%. And overall, you could say that it's only about 7% range. So I understand there are a lot of understandings because of this consolidated financial sheet. However, our financial soundness is pretty strong. And this might also raise the question that what happens with the financial business sector? Are they in a risk? However, HMC, excuse me, HCA, HCS, they also have a lot of financial assets. And to ensure that they have a financial soundness, they go through deliberation on a monthly basis. And even though our penetration rate and debt rate in the U.S. might be going up, we ensure that our top-time customer rate is less than the market average, and that is still the case, so that we can lessen the Zulensky rate and any of the risk rates that might occur. threaten our financial soundness. So all of the financial businesses, especially in the US, is focused on keeping the soundness. And that's why we are confident that we will be able to comply with the shareholder policy that we have promised at the beginning of this year. And once again, I would like to emphasize that the debt rate of the auto business alone is not as high as mentioned in our financial sheet. Thank you. Next question, please.

Your next question will be presented by Theo Hadiwijaja from JPS Asset Management. Please go ahead with your question.

Thank you very much for taking my questions. I have three of them. First one is, can you talk about the impact of price cuts on EV in the US as well as the implementation of IRA so far? Generally speaking, how do you plan to address these developments? And second question I have is, do you think there will be any impact to you from the upcoming labor negotiation at UAW in the US? And thirdly, can you talk about your net cash position at the auto unit as of the the end of second quarter.

Thank you. If there is, please explain what it is, and if there is, please give us a simple plan on how to deal with it. Secondly, I would like to ask what impact the results of the UAW labor negotiations in the United States have on the Korean economy. Thirdly, I would like to ask questions about the web cash solution.

Yeah, hi, Theo. This is Jayan Kuh, head of IR. Thank you for your questions. With regards to your first question on the price cuts of the EVs, whether the price cuts on the EVs has any impact on us overall. As you know, we do not qualify for the tax credit for the IRA. As a result, our incentives have been going up. But if you look at the incentives overall, the primary reason it has been going up is because of the EVs, the incentives we have been giving to the EVs. They have ranged somewhere around $4,000 to $5,000, a little bit over $5,000. So that is actually, you know, we are in many respects have to give some incentives in order to compete on the price basis. So we have actually been doing that overall. And also the second question in terms of whether the impact of the upcoming labor negotiation with the UAW will have an impact on us. I mean, that's very difficult to say. I don't think in the past it has actually made any differences, but it's hard to give you a direct answer on that because generally I think the negotiations is much more local rather than really taking into account what has happened in the U.S., UAW. And the third question you had was the net cash position. The ex-finance net cash position As of the second quarter, it stands around a little over $14 trillion won.

Yes, I will give you the answer. The first question is about the price of the vehicle. You asked if there is an impact on the price of the vehicle. In our case, as you said, we do not receive responsibility incentives from the IRA. We are paying higher incentives for electric vehicles such as IONIQ 5 and 6. The reason why the incentives are increasing is mainly because of electric vehicle sales. In the past three months, the incentive was about $3,000 to $5,000. So, by paying this incentive, we were able to compete with the price and sell it. The second question is about the impact of the UAW labor contract. It's not an easy question to answer. In the past, there was no change in Hyundai Motor Company due to the results of the labor contract. The labor contract was held locally in the U.S., and there was no impact on the company's board in the past. The third question is about the net cash position. Except for the financial part, Next question, thank you.

Next question, please. The next question will be presented by Jinwoo Kim from Korea Investment and Securities.

Please go ahead with your question. I'm wondering where the most aggressive competitors are, whether it's incentives or supplies, in the U.S. market. Secondly, I think there will be $10 per kilowatt for the module process related to AMPC. Will this be used to increase the profitability of electric vehicles? Or will it be used as an incentive resource?

Thank you for this opportunity. I have two quick questions for you. So recently, not just in the U.S. market, but throughout the world, which is one of your key competitors that is most aggressive, whether it be incentive-wise or volume-wise? Second question is regarding the ASB module. So I understand that you get $10 per kilowatt. So would this be used for improving the EV profitability, or would it be used for incentives?

Yes, this is Mr. Seo. In the U.S. market, it's a little bit different for each car. For electric cars, of course, Tesla is leading in terms of price, so most of the competitors are participating in terms of price. We also answered the previous question, Most of the incentives we are using now are for electric vehicles. We can't help it. It takes about a year to two years to do it locally in the U.S., so it's true that we can't see the benefits of the IRA until the first half of this year and next year. So, we are focusing on incentives for electric vehicles, so we are adjusting the price range. The IC side, and then the electric vehicle side, including Tesla, . . .

In the U.S. market in particular, I think it's very different by each model. However, for the EV market, the most aggressive is obviously Tesla because they are cutting down prices. So they are leading the trend of cutting down prices and as a result, not only us but our competitors are also following this trend. And that is why we are putting most of our incentives in the U.S. market for the EVs because it will take at least one or two years for us to localize productions, which means that for the remainder of this year and maybe earlier half of next year, we will not be subject to the tax credits.

In the case of IEC vehicles, rather than a specific company leading the incentives, the manufacturers, the vehicles, the aging vehicles, or the specific production volume or these parts, they do it in a specific way In the case of sedan or other parts, the incentive is rising a lot in the case of the ICE engine. Recently, as the sales volume of SUVs has increased a lot, the incentive has not increased so much in the case of ICE engines and ICE cars, and competitors are also focusing on electric cars.

However, the story is a little different for the ICE models because there really is no leader who is focusing the incentives in ICE models. I think it's very different by each model segment and where the productions are because they do need to get settled down and handled in the inventories that they have. If we were to pick something out, maybe the incentives are a little big for the ICE-CE model. However, for our case, we are focusing more on SUVs, and we don't see any big competitor that is increasing incentives for SUV ICE. So, the short answer to your question would be for ICE, there really is no specific OEM that is leading the incentives.

I will answer the second question. The question is, what kind of incentive would you use for the process of the module? By the time we receive the incentive for the module competition, we expect that we will be able to receive benefits from the tax support of the U.S. IRA. At that time, if the competition is a situation where we can compete without paying a separate incentive, of course, we will first use it to improve the quality of the electronic vehicle. The second question is regarding how we are going to use the incentives I get for the modern

And by that time, without a fossil, I think we will be subject to tax credits of the IRA. But I think we have to see what the situation will be at that time. We have to see if the competitors will be using that incentive, whether they will still be focused on getting the lead for the EV market. And if not, then we also won't be spending that much because we will have to repeat as is. However, if the competitors are still continuing to pour the incentives to get the lead in the EV, we also will have to do the same because we still need to ensure that we don't lose the lead. So as for where the incentives will be used for, it will be decided what the situation will be at that time.

There's no more further questions.

We'd like to now conclude the conference call for 2023 Q2 Business Results. Thank you for your time.