Hyundai Motor Co

Good afternoon. I am Yoon Tae-sik of IR Group. Welcome everyone to HMC second quarter business results conference call. On behalf of the Hyundai Motor Group, Hyundai Motor Company, I appreciate your time. And please refer to the presentation HMC 2025 Q2 business results on our IR website. The presentation includes quarterly key events, sales performance, and profit analysis. And for a quarterly summarized cash flow statement and detailed regional sales breakdowns, please refer to the appendix. First, second quarter key messages. Starting from this quarter, we'll briefly introduce the key messages of our quarterly performance. Sales have continuously stabilized post-COVID, with second quarter sales reaching 1,066,000 units, the highest level since 2020. up 0.8% compared to the previous year. The favorable exchange rate environment has persisted, recording an average exchange rate of $1,404.01 and a quarter end rate of $1,356.01. The quarter end rate being lower than the average rate had a favorable impact on debt evaluation. Lastly, the Palisade hybrid successfully addressed the demand for HUV SUV, HEVs in Q2 achieving a wholesale sales volume of around 15,000 units. We plan to continue expanding sales to increase our market share in the hybrid market. Next, the sales performance. In the second quarter of 2025, HMCA recorded global wholesale of 1.07 million units of 0.8% from the year before it. And retail sales reached 1.04 million units, reflecting a 0.9% increase over year. Next, I'll go over details about factors affecting wholesale sales performance in our key markets. In the US, sales increased by 3.3% year-over-year to 262,305 units. The growth in ice and hybrid sales have continued to show a strong trend. sales of eco-friendly vehicles recorded a significant increase of 32.5% compared to the previous year, reaching 78,713 units due to the expansion of EV and HEV sales. Notably, the Tucson, Elantra, and Santa Fe models contributed to strong sales performance in the U.S. Despite increasing uncertainty regarding EV sales targets due to policy changes in the second half, solid sales growth is expected to continue in the latter half. In the European market, sales increased by 2.6% year-over-year to 161,000 units. Growth in key markets such as Turkey, the UK, and Spain contributed to the overall increase in European sales. Sales of eco-friendly vehicles recorded a strategic increase of 27.3% compared to the previous year, reaching 72,064 units. Strong sales of the Santa Fe Hybrid and 2020 Santa Fe PHEV drove the overall sales growth in the European market. In the second half of the year, we aim to achieve growth in EV sales volume alongside a successful launch of Insta and IONIQ 9. In Korea, sales increased by 1.5% year-over-year, totaling 188,540 units. The successful launch of the Palisade HEV effectively captured the SUV demand and continue the upward sales trend. Sales of eco-friendly vehicles significantly increased by 45.6% compared to the previous year, reaching 68,550 units due to the line-up enhancement. Additionally, the new IONIQ 9 had a positive impact, resulting in a 55.98% growth in EV sales. In the second half of the year, we plan to expand sales through production optimization to effectively meet customers' demand for popular models and improve the competitiveness of key models through various initiatives. Next, let me explain the sales analysis by vehicle type. Global SUV sales, including Genesis, totaled 644,935 units, accounting for 60.5% of total sales. Global passenger vehicle sales reached 366,287 units, representing 34.4% of total sales. The trend of SUVs taking a big portion of the total sales continued, supported by the enhancement of our key SUV lineup, including the new Palisade. Sales of eco-friendly vehicles increased by 36.4% compared to the previous year, driven by a shift towards fuel-efficient eco-friendly vehicle mixes, mainly in the European market and strong sales in the U.S. market. EV sales also saw significant growth, increasing by 33.9%. year-over-year due to the robust growth of EV sales in the European market. Additionally, hybrid sales have continued to show strong growth of 38.5%. Now, I'll move on to the profit and losses. First, our income statement. In June 2, consolidated revenue rose by 7.3% year-over-year to 48.3 trillion KRW, and operating income fell by 15.8% year-over-year to 3.6 trillion KRW. The automotive business revenue increased by 5.1% year-over-year due to favorable forex impact and expansion in high-value segment, especially HEV vehicles. The operating profit decreased by 39.5% year-over-year with tariff impact from the U.S. market and general increase in incentives. Revenue from finance business increased by 16.4% year-over-year. due to continuous growth in the U.S. market penetration rate and asset size. Operating profit increased by 16.4 percent. Net income decreased by 22.1 percent year-over-year to 3.3 trillion Korean won. Next is quarterly revenue and operating income analysis. For revenue, February Forex rate had a $878 billion impact and slight decrease in consolidated volume yielded negative volume effect of $99.6 billion Korean won. Despite increase in incentive spending, hybrid model sales growth led to positive mixed effect of $1.6 trillion Korean won. Additionally, increased finance revenue contributed to overall revenue growth of 7.3% year-over-year. In case of operating profit, The overall Forex rate resulted in a positive Forex impact of 632.1 billion KRW. The rising incentives combined with the sales mix led to a negative 740 billion KRW impact. The recovery in finance performance contributed to 92 billion KRW. The tariff impact began to show this quarter, resulting in a negative impact of 828.2 billion KRW. All those factors contributed to the operating profit decrease by 15.8% year-over-year. The Q2 cost of goods sold ratio recorded 81.1%, up 2.7 percentage point. In case of SG&A, SG&A recorded 5.5 trillion won, which is a 0.9% increase compared to last year due to increase of marketing related expenses in R&D. Finally, our net profit decreased by 22.1% to 3.3 trillion won. This concludes the end of the presentation for the second quarter business result. Thank you. And Lee Seung Jo, head of finance division, will explain the Q2 business performance and tariff impact, as well as countermeasures. Good afternoon. I am EVP Seung Jo Lee, head of finance division. I'll now present HMC's Q2 2025 Business Performance and U.S. Tariff Impact and Recovery Plans and the Second Quarter Dividend. In the second quarter of 2025, the operating profit declined by $828 billion due to tariff impact, and the average incentives in our major markets increased, resulting in an incentive increase of $535.6 billion Korean won compared to the same quarter last year. HMC posted record high sales of hybrid models at 170,000, which is 15.8% of total sales. The Genesys brand also showed solid performance, taking up 5.5% of the total sales, continuously enhancing the company's fundamentals. The sales of hybrid models in Genesys achieved 21.3% of the total global sales, surpassing the 20% mark for the first time. Moreover, thanks to the FX impact with the average of $1,441 in this quarter, leading to a positive impact of 632.1 billion Korean won, combined with the implementation of the proactive contingency plan announced in the first quarter, offset the tariff impact. allowing HMC to achieve 3.6 trillion in operating profit above market consensus. If they exclude the tariff and FX impact, operating profit would have been approximately 3.8 trillion KRW with operating profit margin of 7.9%. Now, I'll elaborate on our measures to mitigate the U.S. tariff impact. As you are already aware, in the current situation of global uncertainty, it is very difficult for a single company to predict how the tariff situation unfolds in the future. Therefore, I will share with you HMC's countermeasures to mitigate the impact from tariff, assuming that the current tariff policy remains in place. Short-term measures, the company will first closely monitor competitors and market situation and implement a flexible incentive policy and pricing strategy. Second, adopt fundamental solutions such as reducing material and manufacturing costs, as well as pursuing changes in parts sourcing to achieve efficiency in manufacturing. And third, proactively implement the contingency plan by prioritizing the investment without disrupting our core businesses. From mid to long term, the company will first seek to localize sourcing of key parts through company-wide collaborative efforts from R&D, production, and quality. And second, thoroughly review expanding local vehicle production based on different scenarios to flexibly address different market changes. By implementing our short and mid to long term strategies, we'll continue our efforts to not only mitigate tariff impact, but also improve the company's fundamentals. Now, let me share our second quarter 2025 dividend plan. In August 2024, HMC announced a value-up program promising a minimum dividend of 10,000 Korean won per share and quarterly dividend of 2,500 Korean won. In accordance with the program, a quarterly dividend of 2,500 Korean won for both common and preferred stocks will be provided this quarter. Additionally, as explained in the last quarter, the dividend record date has been fixed at August 31st. So for the second quarter, the dividend record date is August 31st, and the payment date is September 30th. At this very moment, the tariff impact and market uncertainties persist. While maintaining the 2025 annual guidance explained in the beginning of the year for now, HMC will communicate updated guidance with the market as soon as we gain more clarity on tariff policy after August 1st. Furthermore, President Jose Munoz and our management at Hyundai Motor Group will employ all measures available to recover profit and thoroughly prepare plans to deal with the tariff impact as well as market uncertainties. We sincerely appreciate the continued support from shareholders and investors. Thank you for listening. This is a presentation from Lee Young-suk, CFO of Hyundai Capital, on finance business's second quarter result and the third quarter outlook. Good afternoon. I am VP Lee Young-suk, Head of Finance Division, Hyundai Capital. I will now report the second quarter business result and the outlook for the second half of the business, for the finance business. In the second quarter, Hyundai Capital and Hyundai Capital America, as the group's captive financial companies continue to provide financing for car sales, I'll now elaborate on the details. First is Hyundai Capital. In the second quarter, despite slow domestic economic growth and heightened competition, we expanded group collaboration by releasing financial products aligned with new model launch and utilizing subvention for SUVs, Genesis, and EVs. As a result, total financing volume, including installment and lease, increased 9.8% year-over-year. The auto financing portion in our asset portfolio is maintained at a high level of 82%. With lease profits increased by 13.7% in the second quarter from a year ago, operating income went up by 3.7%, excluding Forex and derivatives effect. As for financing, we have achieved 44.67% of our annual target. It includes a green bond issued in April and a sustainability-linked bond issued in July. Within our domestic bonds, around 25.8% was financed through ESG bonds. In the meantime, supported by the decrease in market interest rate and our efforts to reduce financing costs by repaying high interest loans, second quarter interest rate expenses went down by 2.9%. While the delinquency rates are rising across the financial markets, we maintain the rate below 1%. However, as we preemptively manage risks by expanding provision reserves and increasing relief funds, that expenses rose, which led to an increase in operating expense by 3.8% year-over-year. As a result, operating income declined by 4.6%. However, pre-tax income of spending non-operating income, such as equity methods gained, over which the subsidiaries hiked by 3.5%. In the second quarter, Hyundai Capital will continue to reduce OPEX and financing costs and actively sell NPLs to secure profits. We also will continuously provide financing for the car sales of the group. While prepared for the business start of the Indonesian HQ and review establishment overseas corporations and strategic regions for the group's auto sales, these activities will enable us to keep increasing the coverage of the group's global auto financing. Next is HCA. In the second quarter, led by the group's strong auto sales, our customers' penetration rate continued to surge. Both installment and lease showed sound growth and overall product assets grew 20% from last year. Not only the asset size but also product interest rates went up leading to second quarter operating income to hike by 4.3%. We achieved 60.3% of the annual financing target by successfully issuing $3.5 billion bond in June and 1.2 billion euro bond in the EU market first time ever As such, we could secure liquidity and diversify financing portfolio. Based on this active financing activities, the size of loans expanded and the second quarter interest expenses increased 22.3% year over year. From the perspective of asset soundness, unlike market concerns, our prime customers taking up more than 85% of total customers contributed to a continuous decline in delinquency rate from the end of 2024, Due to the rise of used car prices and active remarketing activities, the risk of residual value is also limited. As asset soundness improved, bad debt expenses decreased by 17.3% year-over-year, and the total operating expenses slightly increased by 3.0% year-over-year, and operating income went up by 26.9% year-over-year. In the second half, market uncertainties are expected to grow, mainly due to the tariff policy. However, Hyundai Capital America will launch financing programs aligned with the group's sales and pricing strategies so that it can expand its role of providing auto financing and will respond to market changes flexibly by closely monitoring the market with Hyundai Motor Company. That is all for the presentation of finance segment.

Thank you for your attention. Now Q&A session will begin.

Please press star 1, that is star and 1, if you have any questions. Questions will be taken according to the order you have pressed the number star 1. For cancellation, please press star 2, that is star and 2 on your phone. The first question will be provided by Heejin Lim from Citi Securities. Please go ahead with your question.

Hello, I'm Hwang from Citi Securities. I'd like to ask you two questions regarding tariffs. First, Japan's tariffs were 15% yesterday. Regarding the U.S. price policy, I'd like to ask you two questions regarding the U.S. price policy, When the interest rate is below 15%, when the interest rate is reduced by 25%, is there a chance that the price policy in the U.S. can change a little bit because of this? Or is our U.S. incentive or price policy, regardless of how many percent the interest rate is selected, just 100% of the market environment with our competitors? Are you going to change that and make a decision? What is the thought process for decision on the price policy? This is the first question. Then, the second one is also on the tax side, but this quarter is not affected by the full cut, so if the current tax rate continues, in the second half of the year or in the future, if you look at the tax impact on the full cut for each quarter, the tax on the export volume and Hello, this is from CT. Thank you for the opportunity.

I have two questions about the tariff impact. Yesterday, there was an announcement of the Japanese tariff, which is 15%. And going forward, for our company in the U.S. tariff policy, Is it going to be changed in terms of our pricing policy? Let's say if we have our scenario for tariffs at 25% versus 15% or lower, will there be any changes in our pricing in the U.S.? Or rather, regardless of the tariffs, changes based on incentives or the tier pricing. Our pricing will be maintained. Would that be your stance? That is my first question. And is it going to change your decision-making? And how is that going to be going forward for your thought process? And my second question is regarding the impact by the crisis. It's not going to be impacted by the full quarter, so if we assume that the current tariff is maintained at the current number, then what is it going to be for the full quarter impact? And can you give us the breakdown between the export volume and also the component as well, regarding the tariff impact? Thank you.

Yes, I will answer the first question. Yesterday, it was announced that Japan and the U.S. have signed a settlement agreement. We can't predict how much Korea will be able to pay for the 15% settlement agreement between Japan and the U.S., so we would like to ask for your understanding that we can't tell you the exact amount. However, from the current 25%, . . . . .

There was an announcement yesterday that the tariff negotiation between Japan and the U.S. was concluded for the time being, and it was the rate of 15%. And as an individual company, I think you're understanding because for us, it will be difficult to – it will be premature to comment on the 15% rate. So we could possibly expect that the rates would be lower than 25%, but as the two countries' negotiations are currently underway, it will be too premature. And for your second question about the pricing impact, I would like to answer after the interpretation.

We talked about the price strategy in the first quarter, and we will follow the fast-follow strategy. What I mean by that is, rather than focusing on the price based on the interest rate, we will monitor the market situation closely and evaluate what is most suitable for the customer's value.

Let me answer your second question about pricing policy. As we mentioned in the first quarter earnings results, we will take the stance of the best follower because we are not going to lead the pricing in the market. Rather, we will monitor the market situation closely, and we will try our best to meet our customers' value. And as such, we are going to flexibly respond to the market.

You asked about the impact of the tax on the second quarter. As you said, there was a tax impact of 82.82 billion won in the second quarter, and it is true that it was not affected by the full quarter.

Again, on the second question, we are not fully impacted by the tourist situation in the second quarter. And you asked about the second half outlook for our impact by the tourist policy. And as you mentioned, we were impacted by the tourist policy at about 828 billion won for the second quarter, and it is not the full quarter results.

Yes, so in the second quarter of the second half of the second quarter, compared to the third quarter and the fourth quarter, I can predict that it will have more impact. Please understand that it is a bit difficult to tell you the exact amount right now, and then you asked me how much the tax on parts affects the overall impact. Regarding the tax on parts, The U.S. announced a system that would give credit to the completed car. Considering that, the overall impact is expected to be about 20% or more.

Again, in the second half, compared to the second quarter and the third quarter and fourth quarter, we expect, of course, there will be bigger impact on our book. And it is premature, again, to precisely comment on that figure. Also, regarding the term impact on components out of our total impact, there is a credit related policy on completed vehicles in the U.S. So if that is being considered, it's going to be about 20% out of our total impact by the threat.

Yes, I'll take the next question.

Please limit the questions to two.

The next person to ask a question is Eunyoung Lim from Samsung Securities. The following question will be presented by Yoon Young Lim from Samsung Securities. Please go ahead with your question.

Hello, I'm Yoon Young Lim from Samsung Securities. The first question is, the vice president said earlier that he will respond thoroughly to the customs, but the press is saying that they won't raise the price until the end of April or October. When we look at the U.S. market, we would appreciate it if you could tell us whether you are prioritizing increasing MS or protecting the profit. And secondly, if the customs tax continues to be maintained at 25% from the third quarter, I think the customs tax hit will exceed 1 trillion won from the third quarter. Thank you.

Good afternoon. I'm Im Eun Young of Samsung Security. Thank you for the opportunity. My first question is, as GDP, can you really explain the plan, the mitigation plan for the tariffs in its presentation? And when I look at the media, I see that Hyundai Motor Company is not going to have a price increase. Price increases in the third quarter, meaning in September and October. So I was wondering about the company's priority. Is it going to be the market share increase, or is it to defend the company's profitability in the U.S. market? That's my second part of the question. Sorry, it's my first part of the question. My second part of the question is that from the third quarter, if the tariffs of 25% remain in place, I believe the impact will be over 1 trillion Korean won. I believe the company has set aside the provision quite excessively. I was wondering in this EV transitional period, is the provision going to be used as the buffer in this uncertain situation?

Yes, I will talk about the first question. You said that you will not raise the price until September or October. As I said in the first question, we are going with a fast-follow strategy, so it is difficult to say at what point we will make a decision on the price impact or this part. Anyway, we are planning a price strategy for various scenarios. Not only the price, but also the way we can create various profits, such as PIO, I'd like to first answer your first part of the question.

By September and October, you said we are not going to increase prices, but it's hard for us to tell you definitely we are going to increase prices or not at this point because we are going to take the fast follower approach. And when or if ever we are going to increase prices soon is something that we cannot tell you at the moment. But again, we are monitoring the market situations, and we'll adopt the right pricing strategies depending on different scenarios. At the same time, we are reviewing many ways to generate more revenue, including port-installed options and freight prices. So we are looking into different options to improve our opportunities.

Next, you asked about whether MS is a priority in the U.S. or if it is a priority for profit-making. In our case, we are focusing on protecting MS And also, on your question on our priority in the U.S.

market, whether our priority be the MS or profit, so our strategy is to achieve both targets of the MS as well as profitability. We'd like to defend our market share in the U.S. market at the same time maintain the current level of profitability, which is, of course, challenging, but with the right strategy, we'll be able to achieve both.

Yes, and then the second question you asked, you said that if 25% of the tariffs are maintained, the tariff effect will be more than 1 trillion won per quarter. So, about that, because we have a set amount of the sales guarantee. You said that if that part is shifted to electric vehicles, there will be a little chance. Our sales guarantee is based on the standard of accounting. At this point, we are calculating the appropriate amount. Because we check every quarter, it is difficult to say whether there is a buffer for that part.

And on the second part of your question regarding if the tariff impact, tariff of 25% continues to remain in place, in the second half, there is going to be the impact over 1 trillion Korean won. So your question regarding the sales warranty provision and in this transition, is it going to be used as a buffer? So we set aside our provision reasonably according to our standards, and we review the amount of provision at the end of every quarter. So for now, we believe that there is no buffer in terms of the provision to be used to mitigate the tariff impact.

Yes, we will take the next question.

The following question will be presented by Kyungji Hoang from Merrill Lynch.

Please go ahead with your question.

Hello, I'm Merrill Lynch from Merrill Lynch. I have two questions. The first is the part you mentioned in the beginning, which is the cost of materials and processing, and then the part about part sourcing changes. First of all, if this action is carried out, I wonder if the effect of the original price reduction that we can predict from 3 minutes later will be included. In terms of materials and especially processing costs, should be considered as a scheme to lower the cost through the negotiation itself, or whether you have this plan according to the specific segment, such as raw materials or batteries. I would like to ask you to give a little more detail. Secondly, in the case of our competitive companies in Japan, if you look at the actual export data of BOJ, the export price has already reached North Korea in May, Thank you for the opportunity. This is Hong Young-dae.

You initially mentioned about the raw material cost, processing cost, and all the components of changes. If these actions are being executed, when is it going to be happening, and is that going to be factored in the third quarter results? And I would like to know if the timing of the visualization of the impact on our cost reduction, especially for the raw material cost and processing cost, Is there going to be some negotiations for the pricing overall, or is that going to be limited to specific segments, including raw materials or such accessories? And my second question is related with that comparison to our peers, especially the Japanese peers. As we see the data, expert data released by DOJ, the pricing level in Maine to the North American region has reduced by about 12%. This seems to be the impact by the tariffs. And are we going to respond to tariffs impact with the same stance with the period? Or are we going to respond afterwards? What are your plans on this?

And the third... Yes, I will answer the first question. We are actively promoting the reduction of parts sourcing changes, material costs, and processing costs. You said that this part has an impact from the third quarter. The part that has an impact from the third quarter is that the HMMA factory has been in operation for 20 years through the improvement of processing cost and productivity efficiency. So, we are now conducting a methodology on the efficiency of production in the factory in a meta-plant. I think the effect will come out in the third quarter from the third quarter. Parts sourcing changes do not take place in a short period of time, so we expect that there will not be many things that come out immediately from the third quarter. We are currently operating TFT for parts sourcing and diversification.

Thank you for your question. Your question about component sourcing changes or the raw material costs and processing cost reduction, we are actively engaged in these activities. And you asked about the actual impact on the third quarter results. In terms of processing costs and efficient production on methodology, as you know, our operation of HMMA has been about 20 years. So we are going to expand our methodology of efficient production will be expanded to meta-client. And that will be, you can see the result in the third quarter results. However, in terms of component sourcing changes, it's not going to be achieved. It can be achieved in the shorter term. So the portion of that impact will not be in the third quarter. However, we have formed a TFT for component rules and changes.

Yes, so we have been informed by the company about the 200 or so parts. We are now reviewing the various different angles, whether it is better to export from here, whether it is better to source from there, and what is the best way to source from there. It should be carried out step by step. In order to change the company, the company must be satisfied with the quality and customer safety standards that we have in the forefront, so it seems that it will take some time because we need to check the quality, production, manufacturing, and purchase of that part.

We have about 200 components of the flyers that we collaborate with, and we have received their proposals for us, and we're going to review those proposals in various ways, and we're going to assess and analyze if that's going to be better for us, if we export or if we locally source. So these kinds of reviews have to be implemented in steps, And as you know, to change suppliers, it is a massive scale of analysis because our almost priority is quality and customer safety. So to meet our expectations in various items, including quality, production, manufacturing, and procurement, we need to take sufficient time to review on these items.

I'd like to answer the second question. The second question is that Japan's export volume has dropped in the third quarter. I think you're talking about the export price, the FOB price. As a result of the export price in Korea, I asked if we could reduce the impact of the customs tax a little bit. The FOB price is a problem of the previous price in both countries, so it's very easy to We cannot proceed as we please. We have discussed this in many ways, and we can officially tell you once we have finished discussing this. However, at this point, we cannot officially say that we will do this or that. This could cause misunderstanding between the two countries, so we ask for your understanding.

And you also mentioned our competitors on pricing policy or the pricing trend, especially of Japan, their price or FOB pricing to the North American region. And our stance or our reaction to this, I guess you mentioned and asked this question because there is a possibility for us to decrease the FOB price with the exports. However, FOB pricing changes is highly related with the transfer pricing issue. So we cannot touch that easily. And we have been actually reviewing on this agenda for a long time. So once we conclude our review, and then we could officially communicate with the market. But as for now, it will be premature to comment on this. And I would like to refrain from commenting on this, especially to prevent any misunderstanding between the two countries.

Lastly, I can't tell you the amount, but as I said before, we believe that it is possible to regulate FOB within the scope of the APA, so we have been doing that every year. So we have been regulating it regardless of the tariffs.

Lastly, I would like to add another point because on the pricing and the amount within the APA scope, we have been adjusting the FOB pricing so it has been done annually and that has been done regardless of the TRIP and we are doing it already.

The last question will be presented by Chris Roberts from Sheen. Please go ahead with your question.

Hi there. Thanks very much for making the time for the call. Could I just ask, what is the net cash position in the auto business as of the end of the quarter, please? Because I know that that's a number you've given in the past. Thank you.

Hi, this is Jayang Koo. The net cash position as of the last quarter is 14.1 trillion Korean won ex-finance.

This is Chris Roberts from PGIM. How was the net cash position in the second quarter? I'm Gu Jayong, Vice President. The net cash position in the second quarter is 14.1 trillion won. This is an exception to the finance sector.

That concludes our second quarter 2025 earnings result conference call.

Thank you for listening.

If you have any questions, please contact Hyundai Motor Company's IR Group.

Thank you very much for your attention.