Hyundai Motor Co

Good afternoon. This is Michael Yoon, head of the investor relations team. Now let me start Hyundai Motor Company's 2023 Q3 business results conference call. Please refer to the presentation, HMC 2023 Q3 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. First part is sales summary. Our 2023 Q3 global wholesale increased by 2.0% year-on-year to 1,045,510 units, while retail sales increased by 1.8% year-on-year to 1,019,849 units. In third quarter, our wholesale increased due to strong sales in North America and Europe despite seasonality. In domestic market, sales increased by 3% year-on-year due to strong sales of the all-new Kona along with steady demand of hybrid vehicles and launch of new Santa Fe in August. In North America, wholesale increased by 13% year-on-year due to strong sales led by high-value models like Genesis and significant increase in EV sales after active response to IRA. Especially in the US market, wholesale increased by 27% year-on-year, helped by strong sales of SUV models. In addition, EV retail sales increased by 183% year-on-year due to proactive marketing. In the European region, whole sales increased by 8% year-on-year due to steady sales of eco-friendly vehicles with new Kona EV and HEV. In India, we had stable sales in SUV segments with the launch of micro-SUVs extra in July. Starting with the launch of Kratz facelift next year, SUV sales momentum is expected to strengthen. Next is sales by model and key status. Global SUV sales portion increased by 4.1 percentage point year-on-year to 54.7% due to global launch of the all-new Kona and solid sales of our flexion models such as Tucson and Santa Fe. Genesis portion in Q3 increased by 0.2 percentage point year-on-year to 5.1% due to strong sales of flagship models such as GV17. Sales of eco-friendly vehicles increased with stable sales of EVs and HEVs. Global HEV portion increased 2.9 percentage point year-on-year to 8.6% with the global sales of the all-new Kona, especially in Korea and European markets. Also, global EV portion increased 1.2 percentage point year-on-year to 6.3% with increased sales of EVs in Q3 US market due to appropriate use of incentives to respond to IRA. More details on sales for major markets such as Korea, the US, and Europe are provided in the appendix page 11. This is the end of presentation on sales and now I'll move on to financial summary. This is the income statement. Consolidated revenue increased by 8.7% year-on-year to 41 trillion won, and operating profit increased by 146.3% year-on-year to 3.8 trillion won. The automotive division's revenue increased 9.3% year-on-year due to increase of volume, mixed improvement with high margin vehicles. The operating profit increased by 207% year-on-year. Finance division revenue increased by 0.9% year-on-year, and the operating profit increased by 1.3% due to strong sales of vehicles and growth in penetration rate. Accordingly, debt income increased by 133.9% year-on-year to 3,303.5 billion won. Next is revenue and operating income analysis. Volume effect from sales increase was 1.6 trillion won. Despite the increase of incentives, mixed improvement with high margin models had an impact of 1.1 trillion won. Despite the unfavorable 1.2 US dollar rate, revenue increased by 8.7% year on year. Regarding operating profit, volume impact was $314.4 billion won. Positive mix improvement effect that offset increased incentives was $460.9 billion won. Also due to base effective provision cost in Q3 2022 operating profit increased 146.3%. Cost of goods sold ratio decreased by 1.1 percentage point to 79.4% due to the decrease of raw material prices. Despite the increase of labor and R&D cost, SG&A decreased by 20.1% year-on-year to 4.6 trillion won due to base effect of one-off provision cost in Q3 2022. Non-operating income increased by 72.7% year-on-year to 845 billion won. That income increased by 134% year-on-year to 3.3 trillion won. This is the end of our Q3 2023 business results. Thank you. Next, EVP Seo Kanghyun, HMC, Head of Planning and Finance Division, will discuss Q3 performance evaluation, annual earnings outlook, and third quarter dividend plan. Good afternoon. I'm Seo Kanghyun, Head of Planning and Finance Division of HMC. Let me share the overview of Q3 2023 business result, four-year outlook, and Q3 dividend plan. In Q3 2023, despite the market concerns over global automotive demand and the low season, HMC posted global wholesales of 1.05 million units, thanks to the continuously solid market demand, achieving operating profit of 3.8 8 trillion won with OP margin of 9.3%. Our sales mix continues to improve with higher ASB models such as Genesis and SUV sold more, combined with our regional mix improvements such as the record sales in the US and strong sales in Europe and Korea. With the favorable average $1 exchange rate of 1,301, all this contributed to the Q3 performance. I understand that the rapidly changing auto market and macro uncertainties such as interest rate hike and inflation keep creating worries over the global auto demand. Still, HMC has been showing a robust growth in major markets such as the US, Europe, and India, while expecting record sales in the US. As a result, HMC's global wholesales posted 1.05 million units, up 2.0% year-on-year. Following the first half, in the third quarter, the impact of product mix improvement continued. While the total volume increased, the share of SUV and Genesis improved even more, marking 54.7% and 5.1% respectively, which is close to 60% of the total sales. Also, despite the market concerns over the worsening EV sales environment, our EV sales grew 6.3% by 26.2%. Overall, the product mix improvement, sales volume growth, and positive FX impact all drove strong third quarter results. I would now like to touch upon the market concerns over the increasing incentive spending. Excluding the increased incentives for EV sales in the US market to respond to the IRA, the incentives for ICE vehicles in the US have been managed stably below the industry level throughout the third quarter, and the profitability-driven sales policy will continue in the future. HMC has completely reorganized our decision-making and evaluation system, focusing on profitability away from volume growth and has been implementing incentive policies through careful analysis of each market and vehicle type. Next, let me briefly explain our quality cost. Even if there's media coverage on our new quality cost, the precise amount, calculation of liability ratio, and evaluation of the existing provision amount due to the consistent quality improvement may cause quite a gap through this quarter's provision. Also, the amount of provision may change significantly depending on the difference between the $1 exchange rate at the end of the previous and the current quarters. As we keep improving the quality of our products, the impact is recognized by evaluating the existing provision according to the accounting standards, and the current amount of provision to the total revenue is at a stable level. Next is our full year 2023 forecast. In the second quarter earnings call, we raised the annual guidance revenue growth of 14% to 15% and OP margin of 8% to 9%. In Q4, macro uncertainties are expected to grow significantly, such as interest rate hikes, Israel-Hammaz war, prolonged Russia-Ukraine war, and rapidly changing EV market environment. However, we expect to achieve annual results near the upper end of our annual guidance for sales and OP margin through robust growth in key markets, continued improvement of our product mix, minimal increase in incentives, and favorable exchange rates. Even with the growing macro uncertainties, the company will proactively respond to the market environment based on the profit-driven decision-making and strengthening regional HQs in each market. As evidenced by our response to the supply shortage, through our flexible production and response capacity, we will keep the direction of the EV strategy announced at the CEO Investor Day while executing sales and production strategies for EV HEV and ICE by closely monitoring the local market demand in order to consistently maximize profits. Finally, Q3 dividends. As announced at the first quarter earnings call, we set the quarterly dividend payment and dividend payout ratio of 25% or higher as part of our mid- to long-term shareholder return policy. The third quarter dividend will be paid accordingly. The third quarter dividend was decided at 1,500 won per common share, the same as the second quarter. Thank you for listening. Next, SVP Lee Hyung-suk, head of Hyundai Capital's Finance Division, will brief on third quarter finance segment earnings and fourth quarter outlook. Good afternoon, I'm Lee Hyung-suk. I'll report the Q3 2024 business results and outlook for the fourth quarter. In the third quarter, while downside risk persists including interest rate hike and concerns over slowing economic recovery, Hyundai Capital is the captive finance company of the HMG. We are sustaining our performance with the portfolio led by solid auto financing segment. In the fourth quarter, although internal and external uncertainties will continue, Hyundai Capital will respond with agility to secure competitive edge. I'll elaborate on details of each company. First is Hyundai Capital. Based on the HMC's production normalization and close cooperation with subsidiaries, we strengthened installment product competitiveness. As a result, financing assets increased by 2% year-on-year. Moreover, supported by the company's stable financing capabilities by providing the captive auto financing in a stable manner, the share of profitable auto financing exceeded 80% in our portfolio. As a result, on a basis of excluding Forex and derivative valuation gains and losses upsetting the profit and loss effect, third quarter cumulative operating income increased mainly in installment and leased by 35% year-on-year. In terms of cost, interest costs increased from continued high interest rates and deteriorated asset quality across the financial sector, resulting to the increased cost of bad debts, decreasing operating profit by 8% year-on-year. However, preemptive risk management efforts led to delinquency ratio below 1%, the lowest this year, suggesting very strong soundness. In Q4, While the uncertainties are heightened due to continued tightening monetary policies in major countries and geopolitical risk, Hyundai Capital will manage an auto finance-led portfolio so that the external impact will be limited. Also, we will remain proactive in risk management to safeguard against the concerns over worsening soundness. Despite the volatile financing market, we successfully issued one trillion worth ABS this week. We will diversify funding sources to stably secure liquidity and respond to volatility of the financing market. Moreover, in support of HMC's upcoming CPO business, we will expand the financing for used cars and enlarge global finance coverage to solidify the leadership in auto finance market. Next is Hyundai Capital America, HCA. Supported by strong sales of vehicles, cumulative auto financing volume of Q3 increased by 48% year-on-year. Improved mix led by Genesis and SUVs and continuous increase of ASB caused financial assets to go up by 9% year-on-year. Q3 cumulative operating income increased 8% year-on-year. but due to the interest cost increase from high interest rates and rise in provision cost led by asset growth, operating expenses have also increased. As a result, one denominated operating profit went down by 43% year-on-year. But in terms of credit risk, prime asset ratio was raised to 88% within our portfolio, by which we recorded favorable delinquency ratio, securing stable soundness. In September, following March and June, we issued global bonds worth of $7.5 billion total. In Q4, as concerns over prolonged high interest rate and high inflation continue, HCA is preparing in every way to minimize negative impact from risk. By pursuing proactive risk management focusing on prime customers through conservative underwriting strategies, enhanced collection activities to minimize asset insolvency and reduction of OPEX, we will continue our efforts to defend profitability. This is all for the presentation on the finance segment. Thank you. This is all for presentations and now we will take questions.

The first question will be presented by Eunyoung Im from Samsung Securities. I think foreign companies are slowing down their production plans. From the second half of 2024 to 2025. So, the electric car price competition has been too severe, and due to the high demand and high interest rates, is it possible that the schedule for our American factories to return next year will be delayed a little? And is there a possibility that the electric car medium-term sales in 2026 and 2030 will be slowed down a little? The second is that there are a lot of variables about the total budget, so you said that it will be set differently from what is published in the media. First of all, due to the engine total deposit, the total budget was piled up to about 10 trillion won at the end of the first half. So, I get the feeling that it is piled up a little more than what is going out per quarter. It's not this year or next year, but I think it's been about 10 years since the beginning of 2011, so I'd like to ask if there is a possibility of re-entry in 2-3 years. That's all.

So the first question was asked by Lee Moon Young of Samsung Securities. Thank you for the opportunity. Congratulations on the great result despite the difficulties in the market. I have two questions. First, you mentioned the direction of your EV plan. According to the sales report and the earnings calls in the previous quarters, I believe that there has been some slowdown in the EV demand and some OEMs are adjusting their EV production plans. Maybe shifting the focus from 2024 to 2025 and so on. I believe there's going to be more intensified competition on EV price and the demand seems to be slowing down. So I was wondering about the U.S. plan and the timeline for your U.S. plan. And also between 2026 and 2030, I was wondering if the company has a plan to reduce or maybe adjust the mid to long-term EV sales plan. And the second question is about the provision. I believe there are many aspects at play regarding the provision. You mentioned that the amount of provision may be different from what's been covered by the media. But I believe in the first half of this year, Hyundai Motor Company set aside about 10 trillion Korean won provision for engine. It seems to be quite excessive. So, it may not be this year or next year, but I was wondering, because it has been about 10 years since you introduced the new engine, because it has been launched by the end of 2011. So, I was wondering if there is going to be additional provision regarding the Theta engine.

Yes, this is Director Seo. I will answer your question. We are also receiving reports that the demand for electric vehicles is globally meeting hurdles in various markets. We are also conducting scenarios with some expectations about that part. As we said at the CEO Ambassador Day last time, When the paradigm changes like this, our expectation is to plan linearly, but in fact, it is usually a step-by-step change. Electric cars are also a general consumer, such as charging infrastructure or price burden. We also understand that there are some restrictions in the process of going from early adapters to general consumers, and such reactions are appearing. We are receiving reports from the market. The U.S. factory that you asked about right now, however, in terms of receiving the benefits of our IRA, we are making the decision quickly, so there is no plan to delay the production schedule itself in the second half of 2024. We will keep it and we will compete with our cars in the market. We are going to create an environment where we can receive the subsidies that other companies are receiving. Overall, then, what are the sales plans for EVs? Basically, when we set up a business plan, don't we take it as it is once the long-term plan is established? Currently, we are predicting the demand by car for each district next year. EVs are also predicting the demand according to the market. As much as we originally expected, the sales plan for electric vehicles may be slightly reduced next year, but I don't think it will have a big impact on the overall sales. Because, as we said, we have a lot of lines that are parallel producing ICE engines and EVs in the same line, and we can flexibly respond to the purchasing system that can replace the production in that part. I'm going to respond to the market demand through that part. However, we don't have the idea of strategically reducing EVs in a hurry. Because even if there is a short hurdle now, we believe that the part that is basically expanded towards EVs is right. Because EVs are going to grow in an ideal curve, I don't think it's too conservative because of the current hurdles. I don't think it's too conservative because of the current hurdles.

Yes, I'm going to answer your question. Yes, we are aware of some of the challenges that we have against EV demand globally in many different markets, but this is something that we have been expecting for a long time ago with different scenarios. As we announced it at the CEO Investor Day, when the paradigm is shifting, things may change in steps, not linearly. So in case of the EV, there can be many different aspects at play, including charging infrastructure and the prices. Therefore, we believe there are some changes that we are going through as the early adopter phase is now shifting towards more mass adoption of EVs. And regarding our U.S. plant, we made the strategic decision to go with the U.S. plant and start production from the second half of 2024. to respond to the IRA, so we do not have any plan to adjust the timeline regarding the U.S. planned SOP so that we can be eligible for the incentive in the U.S. market. And regarding your question on the overall EV sales plan adjustment, just because once the business plan is set, it's not going to be changed. It's not going to just stay there. It may have to be changed according to the different demand and the changes in demand in different regions. Therefore, we might change our business plan regarding the EV, but the total sales impact will not be huge. Because we do have some assembly lines and plans where we can produce both ICE and EVs, and we can flexibly adjust our procurement and other elements as well to flexibly respond to the changing demand. So, long story short, we are not having any plan to drop EB sales plan anytime soon, just because of the short-term hurdles. But, we believe that in the long term, the EB growth will continue. So, we do not have any plan to reduce production or sales target.

This is about the second question. Of course, in the market, you may think that it is a little exaggerated in preparation for the actual implementation of the central bank. In fact, that part is based on the accounting standard. Recently, we have changed to a designated supervisor, and as we become a designated supervisor, as you know, in the market, we are setting costs according to conservative accounting standards. At this point, I can't tell you the possibility of joining. Because the engine is We are doing it according to the scheme, but there are some things that need to be checked over time, whether there is a problem again in the case of the vehicle of the customers who have completed the recall program after repairing it, so we have a conservative budget, but we don't have a plan to pay for it right now.

And on the second question regarding the provision, regarding the theta engine, you might believe that it is excessive, but it's set aside according to the accounting standards, and we have introduced a registered auditor, and so we are calculating such cost according to the conservative standards. So, at this point, we cannot really say there is a possibility that we are going to recognize further provision. By the nature of engine, it will take some time to really see the market feedback after doing some repairs and running recall programs. So, at the moment, we do not have a plan to recognize or set aside additional provision for the Theta engine.

Next question.

The next question will be presented by Yoon-Chul Shin from KIEM Securities. Hello, thank you for the opportunity to ask a question. I am Yoon-Chul Shin from KIEM Securities.

I would like to ask three questions. The first question is about the return on investment. In the analysis of PPPT's main increase in interest rates, if you look at the sales and operating profits, the return on investment is negative in sales, and in operating profits, is reflected. I would like to ask you to give a detailed background on what kind of mechanism this part was reflected in. And the second is, the president said earlier that it is focused on profitability, but it is possible to reach the Q target set by selling about 1.2 million units in the fourth quarter in preparation for our Q target, which is 4.32 million units. But rather than Q, the reason why he said it is focused on profitability is because I understand that it is profitable even if you miss a little queue rather than making an additional impression in the fourth quarter, but I would like to ask you to take a look at how you will take the policy in the fourth quarter of the incentive. And finally, if you look at the results of the OEMs in the U.S. that were recently announced by Tesla or GM, not only the power cost or the demand for electric vehicles, but also the macro environment in the U.S., especially for our current car, since the U.S. is the largest market, Thank you for the opportunity. My name is Shin Yoon-chul, and I'm from GM Securities.

I have three questions. My first question is about the Forex impact because if I see the presentation of your earnings report and I see the revenue and operating profit and the Forex impact and revenue was negative and it was plus for operating profit. So what was the mechanism behind it? My second question is about the profitability driven strategy. Because to meet the target for the 1.2 million units for sales in the fourth quarter, you have to meet 1.2 million units to meet the target. So if you focus on profitability, then you might have to miss in terms of the quantity. So how would you deal with this? And what is your policy behind this? And then my third question is about the US market. If we see the U.S. OEM earnings reports, especially Tesla, we see that there is a strike from the labor union, and also we see the demand weakening in the U.S. market. Along with the macroeconomic uncertainty surrounding the environment for the auto industry, we see that there is a big risk for the HMC in the market. So since there are concerns over the market slowing down, Although, despite these risks, you said that you will reach the upper end of your guidance that you suggested. So, what is your competitiveness compared to your peers in the U.S. market? Thank you.

Yes, this is Director Seo Hwang-in. I would like to explain the effect of the exchange rate on the first question. Of course, if the exchange rate falls, the sales will fall. Then, why did the profit increase when the sales fell from the business profit side? If the share price fluctuates a lot, the sales impact and the costs will be the same. In fact, the cost side, when Mr. Lee Moon-young asked a question earlier, the sales tax is actually a tax on costs that occur overseas. It is evaluated by the end of the year. The amount itself is a very large amount of money, so it can be affected as much as the amount associated with the exchange rate evaluation. And another thing you should be aware of is that the exchange rate is not only affected by the US account, but also by the US. There is also the euro, the Canadian dollar, the Australian dollar, and various currencies that generate our sales. It also occurs on a regular basis, and the stock market also moves separately with such accounts. Yes, on your first question about the fourth impact on different directions for revenue and operating profit.

So when the fourth extension rate goes down, the revenue will have a negative impact, of course. But why the operating profit has increased? Well, if there is a huge impact from the Forex, then there will be a large impact as well in terms of the expenses on the operating profit as well. However, as Ms. Yiming Yang from Samsung Security suggested about the provision account, we do have overseas liabilities account in terms of the provision. So at the end of the term, we will have the evaluation on that. And also in terms of the Forex, We do have U.S. accounts, but for other currencies as well, we deal with Euro or the Australian dollar as well. So these could also affect our books. It does not, something that we see, or revenue or operating profit go in the same direction all the time, so it could go different ways.

The second question is about the development of profitability. Then, even if you can't achieve the amount in the fourth quarter, would you make a decision to reduce the number of incentives? It's not easy, but when we make a decision, we don't always choose one of the two targets at once. I think it's possible to reduce the incentives as much as possible, but in fact, you have to achieve some volume to cover the fixed cost. and then use incentives beyond the efficiency part so that it does not fit the market needs, the efficiency will not come out in preparation for the cost. We are always like that, but in the past, in fact, in order to achieve the volume, there were times when we used incentives beyond the efficiency level, but the fact that we turned it into a decision-making structure based on profitability means that we have changed a lot as a local and local system, and the KPI evaluation of the local employees Your second question was about the profitability that we will be focusing on.

You said that even if we miss the target for the quantity and the worth quarter, question was, will we increase the incentives? Well, this will not be an easy decision making, but whenever we make decisions, it's not something that there's always one option. So, we could take different approaches as well. So, to raise profitability and also to keep the volume, sometimes it has to be impacted on the fixed cost as well. Sometimes there are situations when incentives cannot be very effective. So we will have to think about this quantity and the profitability as well. And for the KPIs of local corporations, executives, not only the volume, the profitability KPI is their goal. So to meet those targets, we will have to keep making efforts.

The third question is, what is the competitiveness of the parties in the United States? Basically, I don't think we can leave out the product story in the manufacturing industry that sells products. As you know, the strategy that we transferred to the SEV in the United States was going very well. Palisade, Santa Fe. Recently, Santa Fe, which is probably new, is much more popular in the American market than in Korea. The response of the dealers was very good. We are looking forward to the promotion of the new Santa Fe after the fourth quarter of next year. In terms of developing and developing the overall product, the core work of local companies, such as the American Design Center, the American Institute of Research, and we receive the overall local opinions from the initial development stage to make the products that local consumers want, such as process improvement, etc. We are seeing that the preference of American customers for our products has become very high, and that part is connected to the brand image, and even the Genesis vehicle is selling well now. At the same time, we are making a lot of efforts to improve the network. We don't have the stage to communicate with the market, but our dealer body is focused on good dealers and large dealers. Bigger and Better strategy, focusing on the large scale, and we have been making efforts to strengthen the network for the past three years. We are also working hard to improve the facilities and strengthen the network. As I said earlier, as we operate as a forward-looking system, the dealer body, the American market, Also, your third question about our competitiveness in the US market.

I think that as a manufacturer, a product competitiveness is very important. So I think our strategy toward the SEP focused sales is very effective and led by Palisade and Santa Fe and also for the new model of Santa Fe in the US market, you're getting very good feedback from the dealers. And we expect highly on the sales outlook from the fourth quarter of 2024 for the new Santa Fe model. And our competitiveness will lie with the initial development stage with the local R&D center and design studios. Because we can get opinions from them, we could receive what our customers would want in the U.S. market. So along the whole process, we do have a very systematic system in place. And so this will lead to our brand image and also lead to Genesys performance, really strong performance with Genesys as well. And what's more important is the network improvement, and we are trying really hard to improve the networking with our dealers. We have the strategy of bigger and better, so by strengthening the network with our dealers, we have been making these efforts for the last three years. And also facility improvement and also the subsidies are the important factors as well. And as I said earlier, we are operating the system with locally hired people for dealerships. So with this dealer body, we can reach our customers in the market.

Next question. The next question will be presented by Gwangpyo Hong from Macquarie.

Thank you for the question. I have two questions. One is, I heard that UAW and Ford have agreed on a 25% increase in wages in the U.S. What do you think about the burden of wages in the U.S. and the future labor strategy? I would appreciate it if you could tell us what kind of pressure there could be. The second is about guidance. Of course, you may have approached it from a conservative point of view, but if you talk about the top, the 15% sales increase is 9% OP margin, which means that the quarter is only 3.1 trillion won. Now, I'm wondering what you think is the biggest risk factor. And when we go next year, among the factors such as the amount, mix, and other factors that we suggest,

i am hong kong fuel from mercury i have two questions first regarding the uaw agreement with ford on the 25 wage increase in the u.s i was wondering if hyundai motor company is under pressure from this deal regarding your strategy with LU in the US. And my second question is about the guidance. You mentioned that there is a high possibility to achieve the upper end of the guidance, which is 15% revenue and OP margin as well. But the company only achieved 3.1 trillion revenue in the fourth quarter. So I was wondering what's behind the confidence for achieving the upper end of the guidance for the full year 2023. And in 2024, I believe, of course, there will be a lot of different variables at play, including the volume and the mix improvement. But which factor do we need to approach more positively and which more conservatively?

I will answer the first question. Yes, the agreement of 25% or more is expected to affect our HMMA Alabama factory, and then the GMA, which will continue in the future, and the electric car factory in Georgia. We are also expecting that it will have an impact on the income. However, the 25% will be done by Ford. whether we should go with the same amount or not. Because we had a little impression of what we had done recently, we should consider the level of income as a whole and probably start a negotiation strategy. Of course, we are not included in the UAW, but we are still in a completely public state in the United States, so we I expect to proceed with some income compensation negotiations with the workers. In that regard, we are continuing to work to cut down other logistics costs, and the raw materials are falling a little bit compared to when they went up for a long time, so I think we can cover it enough with such cost reduction factors.

On your question regarding the 25% wage increase deal with Ford, yes, we are expecting some impact on our employment regarding our HMMA's Alabama plan and our Georgia plan, which is HMGMA, which we are building at the moment. But just because Ford struck the deal of 25% wage increase with its employees, do we really have to follow suit? I don't think so because we already increased our wage and we will have to have our own negotiations with our employees. And we are not part of the UAW in the U.S., but considering the situation of full employment in the U.S., we somewhat have to also consider increasing some wages. But I believe this can be offset by the impact that we can have from bringing down the logistics cost as well as the reduced commodities cost as well.

The second question is about the guidance part. That's right. We also think that we can slightly exceed the guidance. Of course. But when we modify the guidance, when we communicate, it would be right for us to modify the guidance when there are more than 0.5% variables. I think it's not enough to say that the guidance is a little over the top of the guidance. I think it's not enough to say that the guidance is a little over the top of the guidance. I think it's not enough to say that the guidance is a little over the top of the guidance. I think it's not enough to say that the guidance is a little over the top of the guidance. I think it's not enough to say that the guidance is a little over the top of the guidance. I think it's not enough to say that the guidance is a little over the top of the guidance. I think it's not enough to say that the guidance is a little over the top of the guidance. I think it's not enough to say that the guidance is a little over the top of the guidance. I think it's not enough to say that the guidance is a little over the top of the guidance. I think it's not enough to say that the guidance is a little over the top of the guidance. I think it's not enough to say that the guidance is a little Israel. Yes, there is a war between Israel and Hamas, and we have an impact on Israel's sales. I think it will be expected to be about 5-6 trillion in the fourth quarter. In Israel, of course, there is such an impact because we are a company that has a market share of 1 to 1, and if there is a sudden increase in the fourth quarter, there will be a slight impact, but in fact, when we expected the end of the year, wouldn't we slightly exceed a certain part of the guidance? This is our general outlook.

And on your second question regarding guidance, yes, my answer was that we are likely to hit the upper end of the guidance. We might exceed a little bit, but the thing is when the guidance is set, it has to be adjusted when we expect more than 0.5% difference. Therefore, that's why I said we are going to be achieving the upper end of the guidance. So, and on your second part of the second question regarding the risk factors in the first quarter, if we have any risk factors that we are seeing, my answer is no, we do not see any particular risk other than things that have been covered by the media. One of which will be Israel Hamas war, which will have some impact on around 5 to 6K units sales in Israel because we are number one or two in Israel currently. And also, in the fourth quarter, the economy might be hit, which will also have an impact on our sales. But however, I believe we are keeping the guidance by the end of this year.

What factors do you see as positive in the 24-year outlook? Of course, the most positive factor is the decrease in demand due to the recession. In addition, we are also looking at the part of the demand for electric vehicles that is still coming out in the media. I think that part will be a little conservative to grow our business next year. What is the positive effect? I told you about the positive effect, but we are looking forward to making a big impact by launching a new Santa Fe in the U.S. market, which is showing strength now. The positive factor of the manufacturing company is that we need to have confidence based on the new product we are developing. As you know, we continue to strengthen and brand the global network, and continue to restore the trust of consumers by focusing on SUVs and Genesis. We expect it to work as our strength next year as well.

And on the last part of your question regarding the ups and downs of our 2024 outlook, the downside will be a potential economic slowdown, which will lead to the demand slowdown as well. And again, the EV demand weakening, that's one of the things that we are closely looking at right now, because that may be a big challenge to our business growth. On the flip side, we are very strong in North America, and the launch of the all-new Santa Fe, we are expecting a lot for those models. As a manufacturer, we are very strongly confident about the new products. And as mentioned earlier, we are strengthening our global dealer network and branding, as well as the sales of SUVs and Genesis, with which we'll be able to gain our customers' confidence in 2024.

Thank you for taking my questions. I have three questions.

So the first one is looking at the slide four in terms of the sales performance in the third quarter. It seems that the volume growth trailed the industry in the US, in Europe, and in India. Can you share some color on what drove the performance being slightly lower than the industry? And second question is, in terms of the recent decision from China to require license to export graphite. Any impact that you expect on the company? And the question I have is, can you share the net cash position at the auto unit as of the third quarter? Thank you.

Thank you for your question. I am Sabia Zara, a member of EP Morgan. I have three questions. First, if you look at the fourth slide, you can see the volume of sales. There was volume growth in the United States, Europe, and India. I wonder what led to this growth in comparison to the demand of the industry. Second, it is related to export in China. I wonder what is the impact of China's strategy and China's export-related company. Third, I want to ask you about the net cash position.

Yeah, hi. Good afternoon, Theo. This is Jayanku, head of IR. I didn't quite understand your second question on the China. Can you repeat that, please?

Thank you, Theo. This is Jayanku. I don't think I understood the second question exactly. Could you repeat the second question?

Yeah, thank you. So, my second question is on the recent requirement by the Chinese authorities for export of graphite to require license starting next year.

What will be the impact to Hyundai?

Okay, let me quickly answer the third part first on the net cash position. Our net cash position is about $14 little over $14 trillion won as of the end of the third quarter. In terms of the first question, in terms of the volume growth, I mean, basically, of course, like in countries like the U.S. and India, we've had actually, especially in the U.S. part, you know, the EV sales have actually been somewhat slower than what we had expected, anticipated overall, and our new volume growth products will not be launched until next year, especially in the U.S. market with the Santa Fe. In the Indian market, basically, we've lost a little bit of market share because we didn't have the micro SUVs, but those are now coming to the market. So we will see the volume actually picking up in India over the next six to 12 months as we have introduced a new mini SUV in the Indian market. So overall, the Volume growth that we will see is, although it has been a bit weak, we nevertheless believe that we will be able to pick up as we introduce the new vehicles, new models in these markets starting from next year.

The third question is about the net cash position. Currently, our net cash position is around 14 trillion won. And the first question was about volume growth in the countries of the United States and India. In the case of the United States, as the demand for electric vehicles decreased, the volume pick-up was not as big as we expected. So, we will have to wait a little more until the new Santa Fe model is released next year. The Indian market is also the same. There will be SUV models, but we will have to wait a little more for the market, and we will have to wait a little more until 6 months to 12 months. So, overall, the volume growth rate is not below expectations,

And finally, the answer to your second question, I guess, I mean, right now, I think basically we've been focusing on our overall exports of our battery-related supplies to the U.S. and the European market. As a result, we have not been really focusing on the Chinese side. So I think we need to look into a bit more on that, but nevertheless, it has been more because of the geographical distribution rather than the other issues.

When we have a bit more detail, we'll get back to you on that with more details.

Yes, we will take the last question.

Due to the time constraint, we will take the last question. The last question will be presented by Kyungjae Hwang from Merrill Lynch.

Yes, hello. Merrill Lynch, Hwang Kyungjae. I will quickly ask about the time constraint. If we look at the current sales growth, the difference in sales growth in the third quarter compared to the last quarter is that It seems that it is less than 200,000 won. When we calculated the temperature of incentives for the past three months with the data opened in the market, it seems that there were many concerns in the market because the cost of almost 500 dollars was quite high. In contrast to that number, I am curious about whether most of the parts of the product mix have improved in the background of our strong performance this time, or whether there was any additional cost improvement, including additional material costs. I am from Merrill Lynch.

When I look at the per unit operating profit, I believe in the third quarter, there has been a gap from the second quarter. When I calculated it, it was around 20,000 Korean won per unit. I believe when I look at the incentive trend for the last three to four months, I believe the spending went up around $500, which is creating some worries in the market. But despite that increased spending, you achieved a strong result in this quarter? Is it from the product mix improvement or any other improvement from the materials cost or any other factors? And I am able to look at the incentive trend in the U.S., but I'm not aware of the incentive trends of the other regions. But is it safe to say that incentive spending is not increasing as quickly as it is in the U.S.? ?

I will answer the question. The current sales interest is about 200,000 won compared to the previous quarter, but you said that the actual incentive went up more than 500 dollars. As you understand, the improved product mix also has a considerable impact on it. As I said earlier, the product mix is steadily increasing gradually as the share price of Genesys and SUVs is close to 60%. Then, another thing is that as I said in the last quarter, the price of raw materials is actually falling a lot. If the raw material drops, it will impact us about 5 to 6 months later. So, those parts have started to come in from the performance of the third quarter. The reason why the cost of raw materials is falling is because of the improvement in sales. The incentive is increased, the mix is improved, and the cost of raw materials is reduced. I'm EVP of Planning and Finance Division.

To answer your question regarding the operating profit deteriorating by 200,000 won per unit, whereas the incentive spending went up. Again, we improved our product mix with our SUVs and Genesis sales share close to 60% of the total now. And also, yes, the material cost went down with the commodity prices going down. And when the commodity prices go down, it takes about five to six months to really see the impact on our bottom line. And so now it's showing in our third quarter earnings results. So with the incentive spending increase and the decrease of the material cost with the mixed improvement, this all contributed to the stronger than expected result in the third quarter.

And the second question is about the increase in incentives in other regions outside the U.S. As you can see, the 3rd quarter growth is not increasing as much as in the U.S. The parts that have been transformed into an increasing trend are the same. Europe and other general regions are also increasing little by little, but the increase is the most common in the United States. Another thing you should keep in mind is that even if there are a lot of American incentives, it is limited to the electric vehicle side, and the actual ICE engines and SUVs are not increasing as much as the market average, so overall, Whether incentives will continue to increase in the future depends on the market situation, but we think that all the incentives that can be used in electric vehicles are being paid, so we do not expect that the incentives will suddenly increase so much.

And your second part of the question was about the incentive spending or the trend in other regions in addition to the U.S. in the fourth quarter. Yes, your understanding is correct. The incentive spending is not increasing as quickly in other regions, including Europe, unlike the U.S. But it is true that incentive spending is increasing in other regions as well, but the increase is not as big as in the U.S. But we have to understand that most of the incentive spending increases coming from the EVs, not SUVs, or ICE on average in the U.S. So will we continue to see the increase in the incentive spending? I don't think so. I do not believe there is going to be a big jump in the EV incentive spending in the fourth quarter.

Yes, thank you. With this, we will end the 3rd quarter of 2023 Hyundai Motor Company Performance Report Conference Call. Thank you.

This is the end of the earnings call and the third quarter 2023.

Thank you for joining. If you have any further questions, please contact Hyundai Motors IR team. Thank you very much for your attendance.