Hyundai Motor Co

Hello, this is Michael Yoon, Head of the Ambassador Relations Team. Welcome everyone to Hyundai Motor Company's 2024 Q2 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 2024 Q2 Business Results on our IRS site. 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 2024 Q2 global wholesale decreased by 0.2% year-on-year to 1,057,168 units while retail sales decreased by 3% year-on-year to 1 billion . In the second quarter, our global wholesale decreased slightly compared to the previous year. However, excluding China, our Q2 wholesale increased by 2.2% compared to the previous year as sales momentum continued in North America. In the domestic market, sales decreased by 9.6% compared to the previous year, driven by the slowdown due to consumer sentiment and weakened EV demand. North America saw a 15.2% increase in sales, driven by continuous strong sales of high-margin vehicles. The U.S. market witnessed increased sales of SUVs and hybrids, with growth rates of 15.9% and 60.7% respectively. compared to the previous year boosted by the launch of all-new Sanofi and all-new Sanofi hybrid in the first quarter. Genesis also saw a 9.0% increase in sales driven by the success of the J280 facelift launched in March. In Europe, despite strong sales of the Kona and Tucson hybrids, sales decreased by 5.1% compared to the previous year on a wholesale basis due to weaker demand for e-braids. In India, Despite a slight slowdown in the second quarter affected by the policy uncertainty and its abnormality, sales increased by 0.7% compared to the previous year on a wholesale basis driven by the strong sales of the credit facelift released in the first quarter and continued growth in the SUV segment with extra and value. Next are sales by model and key status. Global SUV sales accounted for a 54.8% or 1.4 percentage point increase compared to the previous year, influenced by the global expansion of Santa Fe and the release of the Crado facelift and emerging markets. For eco-friendly vehicle sales, despite a 25% decrease in EVs due to weakened demand, hybrid sales increased by 26% compared to the previous year. Hybrid sales are also increasing globally, including but not limited to Korea, the US, and Europe. This is the end of presentation and sales summary, and now I'll move on to financial summary. This is the income statement. In the second quarter of 2024, revenue increased by 6.6% year-on-year to 45 trillion won, as well as operating profit increasing by 0.7% year-on-year to 4.2 trillion won. In the automotive division, revenue increased by 4.4% year-on-year due to regional mix improvements, centered on North America and product mix improvements centered on high-margin vehicles. Meanwhile, operating profit, including consolidation adjustments, decreased by 1.6% year-on-year due to increase in SG&A. Despite increased provisioning costs associated with asset growth and rising interest costs, the financial division saw revenue increase by 23.6% year-on-year due to ASB increase resulting from OEM's mix improvements and a continuous increase in penetration rate. Operating profit increased by 32.1% year-on-year. Net profit increased by 24.7% year-on-year to 4.2 trillion won. Next is revenue and operating income analysis. In terms of revenue, there was a positive volume effect of 713 billion won caused by increasing sales. Despite increased incentives, There was a mixed effect of 200 billion due to the strong North American sales and ASB increase. Favorable exchange rate environment and increase in financial and other division revenue resulted in a 6.6% increase in total revenue compared to the previous year. After operating profit, there was a positive effect of 400 billion won due to a weaker Korean won and a positive volume effect of 153 billion won. Also, there was a total mixed effect of $95 billion due to expansion of North American sale and increased ASB, which offset increased incentives. As a result, there was a 0.7% increase in operating profit. Our second quarter cost of goods sold ratio recorded a 0.5 percentage point decrease year-on-year to 78.4%. SG&A increased by 17.2% year-on-year to $5.5 trillion due to increase of labor and provisioning costs. Non-operating income increased by 70.2% year-on-year to 1.3 trillion won, mainly due to the base effect caused by inventory impairment loss in Russia from previous year and an increase in equity method income. Net profit increased by 24.7% year-on-year to 4.2 trillion won, affected by an increase in growth of operating and non-operating income. That concludes the presentation of the second quarter 2024 business results. Thank you. Senior Vice President Seung Jo Lee, the Head of Planning and Finance Division, will assess the company's business results and share information about the dividend payout for the second quarter. Hello, this is Seung Jo Lee, Vice President of the Planning and Finance Division. Allow me to share our business results for the second quarter of 2024, as well as the outlook for the business ahead and quarterly dividends. In Q2, driven by strong sales in the US, our performance showed a slight increase in FOSA compared to the previous year. The favorable exchange rate and continued improvement in product mix also contributed to the increase in sales and operating profit year-on-year. First, let me report on the sales volume. In Q2, wholesale including China amounted to 1,570,000 units, decreasing by 0.2% to each point year-over-year. Despite a significant decline in equity sales due to weakening demand, we continue to see strong sales of SUVs and hybrids, helping us maintain lava sales. As we mentioned in Q1, our line of eco-friendly vehicles, including hybrids and plug-in hybrids, allow us to adapt flexibly to the rapidly changing market and maintain stable sales and profit. While domestic and European markets declined year-on-year, we achieved our business plan targets for the first half of the year. The US market exceeded our business plan, maintaining a strong sales momentum. The Indian market also continues to show steady sales, and we have some major events coming up, such as the IPO of Hyundai Motor India in the second half of the year. Next is operating profit. In the second quarter, we achieved an operating profit of 4.279 trillion won, with an operating profit margin of 9.5%. The consolidated sales volume, excluding China, saw a slight increase year-on-year, and product improvement continued with more SUVs and hybrids. The share of SUVs increased by 1.6 percentage points year-on-year to 58.4%, While hybrids recorded an increase of 2.4 percentage points, reaching 11.6%, both contributing to the profitability of the company. Additionally, with cost reduction and foreign exchange rate effects, we maintained a high level of operating profit margin. Next, I will discuss an incentive. As you may know, H&C has been focusing on securing profitability and has been improving the business fundamentals over the past few years. Through product enhancement, increasing brand awareness, and HMC strength and flexible market responses, we have consistently gained market share. Although there are external factors that raise concerns about incentive increases in the market recently, we have been closely managing the incentives under our management principles, and we will continue to do so in the future. With timely new model launches and continuous product enhancements through relentless technological development, we will expand our market share while also keeping the incentives at healthy levels. Next, I will discuss the outlook for the second half of the year. Due to the continued high volatility in the market, we do not expect the sales in major markets, except for the US, will improve easily. However, the challenging market conditions for this year have already been reflected in our business plans and we expect a strong performance in the U.S. market and a favorable FX rate to continue in the second half. Therefore, we will continue to focus on profitability and make efforts to fulfill our guidance. At this point, the outlook for the second half of the year is not expected to deviate significantly from the annual guidance, but if necessary, we will provide a revised guidance based on record conditions in the Q3 earnings conference call. Lastly, I will talk about the dividends for Q2. We have decided to maintain the dividend at 2,001, which was raised by 501 in the previous quarter. Going forward, we will continue to make efforts to deliver the promised shareholder returns. Moreover, We are planning to hold a 2024 CEO Investor Day at the end of August. We plan to announce our short-term and long-term business strategies and share our financial goals accordingly. Thank you for listening. Next, Senior Vice President Hyung-Suk Lee, the Head of Planning and Finance Division of Hyundai Capital, will assess the Q2 results for the finance business. Hello, I'm Hyunsuk Lee, Senior Vice President and Head of Finance of Hyundai Capital. Allow me to report on the earnings of the finance business in the second quarter of 2024 and outlook for the second half of the year. Despite the sluggish economy caused by high inflation and high interest rates in the first half of 2024, Hyundai Capital has not only strengthened its support for auto sales, but also solidified its market position with unrivaled financial capability and business soundness. As a result, we have achieved strong sales results. Now, let me provide more details of each business entity. First is Hyundai Capital. With strengthened collaboration between sales and finance, installments and leases grew, increasing total financial assets by 3% year-on-year. By continuing to operate a solid auto financing center portfolio, the proportion of auto finance within the operating assets increased to 83%. As a result, with more revenue from installments and leases, the operating income for the first half of the year increased by 16% year-on-year. Although there was an increase in interest costs due to the sustained high interest rates, the operating profit increased by 28% year-on-year as the provisioning cost increased by 5%. In overseas markets, the profitability of several subsidiaries in the UK, Canada and Brazil improved, resulting in a significant increase of 396% in equity methods income year-on-year. As a result, the net profit for the first half of the year increased by 46% year-on-year. An unstable business environment is expected in the second half of 2024 due to interest rate uncertainty and a sluggish real estate market. However, 100 capital plans to enhance profitability by proactively managing risks and improving asset quality, including keeping the delicacy rate below 1% for over a year. The company will also focus on strengthening support for automobile sales. Additionally, in line with the global strategy of the Hyundai Motor Group, Hyundai Capital plans to expand its overseas business, including starting operations in Australia this year and Indonesia next year. Next is Hyundai Capital America, or HCA. Backed by solid market demand in the US, HCA's penetration rate increased 9 percentage points compared to the same period last year, along with a 10% increase in total financing volume. In addition, with the effect of mixed improvement with more high-margin vehicle types, the financial assets increased by 22% year-on-year. With increased installment sales of new cars, HCA's operating income in the first half increased by 27% year-on-year. In the U.S., however, a prolonged high interest rate increased interest costs and provisions, resulting in a 26% increase in operating expenses compared to the same period last year, but operating profit increased by 33%. In the second half of 2024, we expect to see higher market volatility in the U.S. due to interest rate cuts and political issues. To prepare for such uncertainty, HCA is working to ensure financial wellness by maintaining a high share of prime customers, accounting for 88% of all customers, as well as keeping leased assets at 30% or lower to mitigate residual delivery risk. Furthermore, HCA has issued a total of $8 billion in global bonds over three occasions in the first half of the year to proactively secure liquidity. Such efforts will enable HCA to continue its role of providing financial support for Hyundai Motor Group's auto sales. This concludes my report on the finance business. Thank you for listening.

With that, we will conclude the presentation and take your questions. The first question will be presented by Eunyoung Lim from Samsung Securities.

Thank you for the opportunity to ask a question. I have two questions. The first is that you said earlier that you would promote MS by maintaining the right level of incentives in the United States, but I think there is a budget for the right level of incentives that you think. started to fall as the hybrid model was released, and I would like to ask if this trend continues in the second half of the year. So, I think it would be nice if you could tell us if there is an MS in the United States that you are targeting this year. And as you pointed out earlier, the United States has entered the election race, right now. So, it's the time when we're about to move the American factories, The demand for electric vehicles in the U.S. is also very worrisome, and when Trump is elected, he will eliminate the IRA incentive for electric vehicles, and he will add 10% of the customs to all imported vehicles. I think the market is very worried about it. I know that our electric vehicle factory is made of aluminum, but I don't know how flexible it is Thank you for giving me the opportunity.

So I have two questions. My first question, you mentioned that for the U.S. market, you'll be keeping an appropriate level of incentives to reach a certain market share. So from HMC's perspective, I'm sure you have already set a budget for this incentive. So what would be your appropriate level of incentives? Because I understand that incentives may have gone up as of May. However, with the recent hybrids coming in, the incentive is now going down. So will this trend continue in the latter half of the year? And what is your target for the U.S. market share for this year? And so my second question is regarding the political situation in the U.S. We have the presidential election coming up. And you have a production plant currently to be operated in the U.S. However, the EV demand in the U.S. is not very high. And if Trump does get elected, he is saying that the incentive through the IRA for EAs will be removed completely. And for any imports and foreign vehicles, a tariff of 10% is to be planned. So the market is pretty much concerned if such measures are taken into effect. And you mentioned that your EV plant in the U.S., it is able to do mixed production. So how flexible is that mixed production? How much of hybrid can be produced and how much percentage of EV can be produced?

Yes, I will give you the answer. First, you asked about the incentives of the U.S. market, the appropriate level of incentives, or how much of the expected incentives will be. The U.S. market incentives are currently being used for about $3,100 per share. This is an increase of more than 50% compared to the previous year, and an increase of about 4% compared to the previous quarter.

Excuse me, thank you for your question. Your first question was regarding the incentive level, what is the appropriate level, what is the expected incentives for the US market? So based on EQ standard, we are currently using 3,100 USD for the incentive, which is about a little over 50% year on year, and a little over 4% compared to the previous quarter.

The market is using an average of $1,157, so we are also using incentives at the market average level. The market has shown an increase of 8% compared to the previous quarter.

If we compare with the market average, the market average for the incentive is currently 3,157 USD, so we are pretty much on average. As for the quarterly basis, however, the market average is up by 8%.

In contrast to this market change, the company has already reflected a considerable increase in incentives in its business plan this year, and is currently managed at the business plan level.

And to prepare for such fluctuations, we already have reflected our incentive changes in our business plan, and we are within our expected range.

So, we expect that the incentives expected in the second half of the year will not go down or go up at this level. That level is our business plan level, and we are going to manage it at that level.

So for the second half, we believe the incentive level will maybe go down, but it won't go up. And the current level is already within the BP range, so it will continue to be within the business plan range.

I will answer your second question.

Currently, the U.S.

is in the presidential race, and Biden has resigned from the candidate position. To answer your second question regarding the presidential election in the U.S., Biden has decided to step down and Harrison will be taking his place, and we believe that it's going to be a very close call between Harrison and Trump.

So considering that Biden has decided to step down and give his full support for hasn't become the president, we believe that he'll be concentrating all his resources so that the policies can be executed to defend what Trump is trying to do. And we are certain that he probably wants to protect his achievements, which is IRA as well as the semiconductor incentives. So to prevent those being scrapped, it's most likely that he will be pulling forward the incentive payment timing, but we will keep a close eye on the market to see what's happening.

If Trump wins the election, it's most likely that there will be universal tariff-imposing levy.

On imports, maybe IRA will be scrapped, and also the eco-friendly policies will be mitigated. And it's most likely that the favorable relationship status for China will also be scrapped.

This is something that the party will continue to discuss and respond to. As you know, the general tariffs have not yet been decided whether to apply to FTA countries. We are predicting that it will not be easy to abolish the IRA because the majority of the people who are suffering from the IRA are the 경합주 and the 공화당. Even if Trump takes over, it may be an opportunity to save the cost of responding to regulations in terms of the cost of the eco-friendly regulation.

So we are going to take our responses, kind of measuring what the pros and cons are. Regarding the universal tariffs, it's not decided yet whether this will be reflected and applied to its FTA partners as well, so we'll have to keep an eye on that. As for the scrapping of IRA, the thing is most of the beneficiaries of IRA are located in states which is very republican uh friendly so we don't know if that actually will take place as for the lowering of the eco-friendly regulations and lightening that if that does happen it also will be act it also will be an opportunity for us to save cost

As for the scrapping of RRA in particular, I think it's something that we need to respond to so that we can better be prepared for the EV chasm.

However, using one of our biggest strengths, which is flexibility in terms of production, we will be reviewing the possibility of increasing the hybrid models. And more further details on this will be presented during our CEO Investor Day in the late August.

And lastly, you asked about the ratio. We have a hybrid production facility at HM GMA,

To address your last question, which was regarding the ratio in terms of the production flexibility of HMGMA, further details on that will be explained also during our CEO Investor Day in late August. Thank you.

Next question, please.

The next question will be presented by Yuncheol Shin from Kiwoom Securities. I would appreciate it if you could tell us the background of the timeline related to the target schedule. And the second question is, in June, there was a sudden growth in the U.S. market due to the CDK situation, but I was wondering if it was due to the sales performance in July, so we can see a recovery. Thank you for giving me the opportunity.

My name is of Hume Securities. I have three questions. The first question, you mentioned about a big event in the latter half of the year, the IPO of EMI. So could you give us a rough timeline of when this will happen, and what is the background of pursuing the IPO for HMI. My second question is regarding the CDK hacking crisis that happened in June. We did see some reverse growth in the retail industry because of this. Do you think that the recovery will be seen in July or will this still have an impact in your sales? Last question is regarding the increase in operating profit. You said that the 750 billion won was due to others' field. So could you give an elaboration of what this others is due to?

Yes, I will tell you. First, you asked about the schedule of the India IPO. Currently, we have submitted the DRHP, and SEBI is conducting a review at the India Securities Exchange. And we are currently hosting a road show. When the final approval comes out of SEBI, we will submit the RHP according to the review report, and after submitting the RHP, we will proceed with the promotion process and list it. The listing schedule will vary depending on when the review schedule at SEBI comes out, but what we are expecting is that we will proceed with the listing at the end of this year.

Thank you for your question. So to answer your first question regarding the timing of the IPO, so you understand that we have already submitted our DRHP and SEBI, the Indian Securities Agency, is currently reviewing our documents. And we are currently conducting a roadshow around the world to promote our IPO. So depending on when SEBI completes its review of our report, I think the timeline will be decided. But once that report and the review is complete by SEBI, we will be submitting our RHP, and then subscription can begin, and then it can be listed. So it really depends on when SEBI completes the review. However, our internal goal is to get the subsidiary listed within the year.

In the second category of the first question, you said why you chose India. When it comes to the global market, the Indian stock market is in the top 4. The Indian stock market is very good. The HMI law itself is very strong and tight in terms of volume and profit.

And as a follow-up answer to your question, why India? Because we got a lot of questions regarding that. Because the securities market of India is actually the global number fourth. It's the fourth biggest and the strongest. And in terms of HMI's capacity, they have a very strong volume as well as P&L.

India's HMI has been established for 28 years, almost 30 years. And as you know, We acquired the third factory, the Pune factory. After that, we reviewed various ways to make the second leap, and one of them was to go to India.

The Indian subsidiary plant is now close to almost 30 years. It's coming into its 28th year. And you understand that we've recently acquired our third plant in Pune. So we want to make our second leap in this market. And one of the ways to do that, we believe, was to lift the company.

Yes. I'll tell you the second question. The second question is about the URM CDK problem. I think this will have an impact on July as well. I was influenced by the CZK in June. So, in July, we are currently doing the summer event that we have been doing since August. We are doing it early in July.

Now I'd like to answer your second question regarding how the CDK hacking affected the retail sales in June and whether the recovery has been made. To answer your question in a nutshell, yes, we were also affected by the CDK hacking crisis in June. So to overcome that, we usually have a summer event in August. However, we have pulled this event forward to be conducted in July so that the losses made can be overcome.

The last question is, what is the 7 billion won that has increased in the guitar part? Among them, there is an effect that the exchange rate has gone up among the sales deposit cuts, so compared to the previous quarter, the exchange rate of 42 won has gone up in this quarter. The effect has gone up to about 200 billion won.

Now to answer your last question, what was the $750 billion increase in the others for operating profit accountable for? First of all, it's our sales provision. And also, that was affected largely by the FX rate. Compared to the previous quarter, the FX rate has gone up by 42.1. So overall, the effect is about 200 billion won worth. And also, the interest rate has gone down. So there was a discount effect in that.

And when we decide on the unit price, the unit price is determined Because you have to consider the rate of inflation or the price increase rate of the parts, the part that went up a little bit about 1,000 billion won. So, there was no special cost or special quality cost. The rest is normal. You can see that all the costs are going up little by little.

And also, when we calculate the unit cost for the provisions, we take into consideration the normal inflation as well as the usual rate. And overall, that was accountable for about $100 billion. So, it's largely due to the FX rate as well as the adjustment in the interest rates overall. So, nothing new, nothing that's kind of extraordinary what a cost to this big increase in the operating profit. It's nothing to do with quality cost whatsoever. So, just little tweaks regarding the current account.

Thank you. Next question, please. The next question will be presented by Theodorus Hadiwijaja from JPMorgan Asset Management.

Thank you very much for the call. I just have two questions. The first one is, Do you have any update on the US lawsuit in the dealership group? What should we expect on that? And the second one is in terms of your net cash position for the automotive division as of the second quarter, if you can share that.

Thank you. Regarding the lawsuit, we are still looking into that issue. We will definitely update the market if there is any results.

And for your second question, the net cash position as of Q2 for the auto business is 15.2 trillion Korean won. Next question, please.

The next question will be presented by Junseong Kim from Merge Securities.

Yes, hello. Thank you for the question. I would like to ask three questions. The first question is about the cost of materials. The cost is 78.4%. It seems to be the number I saw in almost 10 years. You kept talking about the fall in the cost of materials, and it seems to show that the effect is constantly coming out. I wonder what the direction of the material cost will be in the third quarter, the fourth quarter, and the second half of this year. Since you know the SPA price, I think you can predict the input cost, but if you tell me the flow of the third quarter and the fourth quarter if possible, I think it will help to adjust the original price. The second is a financial business. Sales growth has been very strong since the fourth quarter of last year. If you think about the fact that Hyundai Kia's sales are somewhat stagnant, I think the external growth and profit growth of financial businesses are very impressive. Earlier, you emphasized the positivity of the second half of the year, but I think it would be helpful if you could tell us whether this growth can continue in the second half of the year. And the last third question is that we have been communicating that we are reviewing the new stock value stock method from the beginning of the year. I wonder if this can be seen as a story that can be revealed on CU Investor Day on August 28th. In this year's case, if new self-employed people are hired on August 28th, or if subsidies or policies are implemented, it is based on the profits earned last year in August. This year's performance is good. In the case of next year, is it going to be like this this summer? Thank you for giving me the opportunity.

I also have three questions. First is regarding the material cost. You said that material cost saving was at 74.8%, which is a very surprising number that I haven't seen for years. What do you think will be the direction regarding material cost for Q3 and if possible for Q4 as well? Because once you know the spot price, maybe it's possible to also predict what the input cost will be. The second question is regarding the financial business for Q4 as well, because the revenue is pretty strong for the financial business. compared to the fact that the sales at Hyundai and Kia is not as strong. So how do you think the financial sector will grow in Q4? And my last question is regarding the shareholder returns. So you said at the beginning of this year that you're continuously trying to improve the value of the new shares. So do you think the details regarding this will be announced and will it be shared during the CEO Investor Day on the 28th of August? Because it really depends on when we buy the shares. The returns will only be provided once this announcement is made. However, these returns will be based on the profit that was made in the previous year. So we just want to get a hold of when we will be able to get the shareholder returns. And for the next year, will it also be the similar timing at the end of summer, or will it be like so much what Kia did at the beginning of the year?

Yes, I will answer the first question. The cost is 78.4%, but can it be maintained in the 3rd and 4th quarter? You asked about this. If you look at the effect of improved cost, Thank you for your question.

So if I could answer your first question, which was regarding the cost rate at 74.8%. I think this is accountable to various items, for example, the improvement of the mix, the FX rate, as well as the drop in resources cost, as well as the internal saving efforts that we have made. Whatever the case, COGS is going down.

In the second half of the year, we will continue to improve the mix, and if you look at the temperature of the raw materials, it is a little slower than in the first half of the year. It's expected to go down, but it's going to flow in a stable direction, so the exchange rate will also remain strong in the second half of the year than we thought. So, we expect that the exchange rate will not change much at this level.

Of course, in the second half of the year, we will continue to improve our mix, and we believe that the raw material cost will continue to go down. However, it won't go as rapidly as it has done in H1. However, it still will be steady. As for the FX rate, we believe the dollar will still stay strong. So, all in all, the COX rate for H2 will not change significantly.

The second question is from Hyundai Capital.

Yes, this is Hyundai Capital's Lee Young-seok. First of all, our sales in the case of Hyundai cars, on the other hand, the sales of the year are caught by the sales of the year. On the other hand, we have a lot of feedback each year, so our current lease and installment are generated from the assets of customers who are using them. Therefore, compared to Hyundai cars, You can think of it as being more influenced by medium-term sales. So, for the past three years, Hyundai's performance has continued to rise, so even if the sales volume this year is similar to last year, we still expect a trend to rise. The second factor is that It was quite low 2-3 years ago, but it has risen to the same level in Korea and the U.S., so the interest and lease revenue received from customers is the main revenue, so there is no choice but to continue the growth rate. If you look at the level of growth, in the case of the U.S., the penetration rate is even higher, so the growth rate is expected to be greater than that of Korea, However, in Korea, the cost of delivery has stabilized, so the external growth rate is lower than that of the U.S., but the growth rate of the profit is expected to be similar to that of the U.S. and Korea.

Thank you. Hyundai Capital will be answering the second question. So, whereas Hyundai Motor Company based their revenue on their annual sales, we tend to accumulate the volume that we have acquired through lease and installment. So we are more based on mid- to long-term revenue. However, HMC has seen an increase in sales and revenue for the past three years. So although the volume sales might be similar to the previous year, because it has been making constant growth, we believe that we also will be showing growth as well. And the second reason would be due to the interest rate. In the past, two to three years ago, the interest rate has hit rock bottom. However, it has been climbing in the recent years. So most of our revenue is due to the interest rate profit, which also comes through lease. So for us, it's a very big growth driver as well. As for the penetration rate, the U.S. is going up, and it's much higher than Korea as well. Although, on the other hand, Korea's external growth might not be as big as the U.S. However, the profit rate is pretty much similar to the U.S. market.

Yes, on August 28, we are going to talk about the overall stock exchange policy at CU Investor Day, which is expected at the end of August. To answer your third question on our shareholder return policy, yes, it will be mentioned during the CEO Investor Day that is to be held in late August.

Not only the short-term policy, but also the long-term policies are also being reviewed. So I think the overall direction of our shareholder term policy can be covered during the CID. Due to time constraints, we will be receiving the last question.

Thank you. The last question will be presented by Kyungjae Hwang from Maryland Securities.

Yes, hello, this is Hwang Kyung-jae from Melonics. Among the 9.5 billion won of sales in sales due to the improvement of the mix, if we look at the chart page, in fact, unlike before, the power train mix, which actually increases and decreases in hybrid rather than the improvement of the mix of the segment, was very large, and it seems so when viewed as a percentage change rate. My question is currently, At the beginning of the year, you told us about the approximate profitability level, but the raw material has changed a lot, and the stock level has changed, so when the hybrid compares to the current electric car, when compared to the IC average, how much is the sales interest rate? And if the stock level is still tight in the United States, I think it would be helpful if you could tell me the approximate number to see how much it is. You said that the power train plan in the new factory will be announced by the investors, so what I'm curious about is that as we go into the second half of the year, the hybrid chink rate in the U.S. seems to be rising much faster than we thought. Please tell me if there are any factors that you are looking at with confidence as you go into the third quarter compared to the business plan.

Thank you. So you said that due to the improvement in your mix, the OP has gone up by $950 billion. And as you can see on slide five, the mix is not within the segment. However, it seems that you just increased the proportion of your hybrid compared to the EV, just based on the percentage. That is my conclusion. But you mentioned earlier this year on the level of profitability, the OP rate that you want to achieve. However, the raw material prices have changed and the inventory situation has changed. So what do you believe the OP rate will be for hybrid compared to the other average segments? And what is the inventory level currently in the U.S.? Because you say that the inventory level is pretty low and there are some issues. And I understand the new plant in the U.S. will soon go into operation. And if you look at the hybrid penetration rate in the U.S. in June, It's pretty fast and expected. So do you think that for Q3 and Q4, the penetration rate for hybrid in the U.S. will be much higher than your original business plan?

Yes, I will answer that question. You just talked about profitability. We've always said that hybrid is more profitable than EV. We've always said that. Thank you for your question.

Your first question was regarding the profitability for hybrid, and we have been repeatedly emphasizing that The profitability for hybrid is much bigger and higher than EV, and it's not much different from that of ICE vehicles. We cannot give you the exact figures. However, the hybrid profitability is of a double-digit standard.

In the case of EV, the incentive level has gone up a lot as the EV cash-in phenomenon came about. As a result, the profitability was a little lower than our goal,

As for the EV profitability, because of EV calcium incentives are going up, meaning that it is lower than our expectations.

However, we still are maintaining a low single-digit profitability. I said I'd tell you about it on CEO Investor Day. Then, you asked me about the US penetration rate of hybrids.

You also mentioned about the PT production plan for the new plant in the U.S. But that also will be covered during RCO Invest Day in late August. And your follow-up question is regarding the penetration rate of hybrid vehicles in the U.S. market.

Yes, as you said, the hybrid teams in the U.S. market are constantly increasing. In the case of the second quarter of last year, It increased from 11% to 15% in the second quarter of this year. As I mentioned earlier, the Santa Fe Hybrid has been newly released, so the sales of the hybrid will continue in the second half of the year. The last question is about the current supply level in the U.S. Currently, it is maintained for about two and a half months, and it is planned to try to maintain this level in the second half of the year.

Yes, so if I could answer your last question regarding the penetration rate of hybrid vehicles in the U.S. market. The penetration rate is continuously going up. In Q2 last year, it was at 11%. This year, Q2, it's at 15%. And we've newly launched the Santa Fe hybrid. So we believe that the sales will continue to go up in the latter half of the year. You also mentioned about inventory levels. At this time, we believe it's that mid-two-month worth of inventories, and we will be making efforts to maintain this level throughout the latter half of the year.

Thank you for your time.

Now, we would like to conclude the earnings report for HMC 2024 Q2. Thank you.