Hyundai Motor Co

Hello, this is Michael Yoon, head of our group. Welcome, everyone, to Hyundai Motor Company's 2026 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 2026 Q2 Business Results, on our IR website. This presentation includes quarterly highlights, sales performance and profit analysis, And for quarterly summarized cash flow statement and detailed original sales breakdowns, please refer to the appendix. First is Q2 highlights. Despite stagnant industry demand in the U.S., one of our key markets, our market share in the U.S. rose by 0.2 percentage point year-over-year to 6.3%, maintaining market share in the 6% range for the five consecutive quarters. In response to strong hybrid demand, the global hybrid sales reached a record quarterly high of 188,000 units, and the share of global hybrid sales recorded an all-time high of 18.9%. In the U.S. market, the share of hybrid sales recorded 26.2%, continuing its growth momentum. Finally, despite unfavorable conditions with demand slowdown, market share growth in major markets and robust hybrid sales led to the highest second quarter revenue on record. Next is the sales performance. In the second quarter of 2026, global wholesale sales totaled 992,000 units, down 6.9% year-over-year, primarily due to a decline in global industry demand and parts supply issues. Retail sales totaled 999,000 units, representing a 4.2% decrease from the previous year. Next, I will go over details about our wholesales by key markets. In the U.S. market, sales increased 0.9% year-over-year, totaling 265,000 units, while industry demand remained largely flat with a 0.5% increase from the previous year. Demand for electrified vehicles afforded by factors such as elevated fuel prices continued to drive sales. Electrified vehicle sales increased 2.5% year-over-year, reaching 81,000 units. Hybrid sales accounted for a record high 26.2% of total sales. Amid weaker consumer sentiment caused by uncertainty surrounding interest rate cuts and persistently high inflation, demand concentrated on practical vehicle segments such as midsize sedans resulting in sedan sales increasing 9.6% YOY. In Europe, sales decreased by 10.9% YOY totaling 144,000 units Optimization of power duct mix drove LGV sales to rise 0.4% YOY and hybrid sales increased by 17.8%. Despite challenging sales environment, mix improvement was achieved by focusing on high-margin vehicles. Strong hybrid sales continued in Europe as well, driving electrified vehicle sales up 3.7% YOY to 75k units. To respond to growing demand for electrified vehicles, We plan to strengthen our EV lineup and try to expand sales momentum in the market through the launch of the all-new IONIQ 3 in the second half of the year. In the domestic market, sales decreased by 16.4% worldwide to 158,000 units due to production disruptions caused by a fire at a major parts supplier site. However, EV sales rose 30.8% YOY, given by government incentives for eco-friendly vehicles and ionic lines. However, due in part to hybrid supply constraints, total electrified vehicle sales declined 7% YOY to 64,000 units. In the second half of the year, with the rollout of key new models, including the Grandeur Hybrid, Avanti Hybrid, Tucson Hybrid, and Genesis Hybrid models, we plan to restore sales momentum and further expand electrified vehicle sales. Next, I will explain the sales analysis by vehicle types. Global SUE sales, including Genesis, totaled 611,000 units and counting for 61.6% of total sales. While EV sales declined 12.7% YOY, hybrid vehicle sales increased 11.3%, continuing their strong growth trajectory and driving overall sales performance. As a result, total electrified vehicle sales rose 1.7% from the previous year to 266,000 units. This concludes the discussion on sales, and I will now provide an explanation regarding profits and losses. First is income statement. Consolidated revenue increased by 1.9% YOY to 49.2 trillion won and operating income decreased by 20.8% YOY to 2.9 trillion won. In the automotive division, revenue decreased by 2.1% YOY due to lower sales caused by the global demand slowdown and disruptions in parts of YOY. Operating profit decreased by 11.5% YOY due to higher incentives and unfavorable mix resulting from production disruptions of high margin models. Revenue from the finance division increased by 15.7% YOY and operating profit increased by 16.2% driven by a continued high penetration rate and growth in managed assets in the U.S. market. That income decreased by 11.1% YY to 2.9 trillion won as a result of operating profit decline. Next is Partly Revenue and Operating Income Analysis. Revenue benefited from favorable exchange rates contributing 2.7 trillion won while decreased global wholesale resulted in a negative volume effect of 2.25 trillion won Additionally, rising incentives resulted in a negative mixed effect of 1.01 trillion won. Combined with growth in the financial segment, total revenue rose 1.9% YOY. Despite the record high second quarter revenue, positive foreign exchange impact was reduced to 238 billion won due to higher quarter end exchange rates relative to the quarterly average exchange rate. In addition, sales decrease in Middle East region and sales disruptions caused by parts supply issues resulted in a negative volume effect of 542 billion won. Regarding the mixed set, despite favorable contributions from increased sales of high margin models including hybrids, A negative impact of 569.9 billion won was reported due to higher incentive spending resulting from intensified competition in major markets. As unfavorable business conditions and intensified market competition negatively impacted our profitability, operating profits decreased by 20.8% YOY to 2.8 trillion won resulting in an operating profit margin of 5.8%. The last part is SG&E and net profit. Our Q2 cost of goods sold ratio recorded 82.2%, an increase of 3.3% YOY due to the rise in material costs. SG&A recorded 5.9 trillion won, a 6.8% increase compared to last year due to higher sales warranty provisions resulting from the increase in quarter and exchange rates. Finally, our net profit decreased by 11.1% to 2.9 trillion won as a result of operating profit decline. This concludes the end of the presentation of the 2026 Q2 business result. Thank you for listening. Next, Executive Vice President Seung Jo Lee, the Head of Planning and Finance Division, will assess the company's business results in Q2. Good afternoon. This is Seung Jo Lee, Executive Vice President and Head of Finance Division. I will now present Hyundai Motor Company's 2026 Q2 business performance as well as details regarding the Q2 dividend. In the second quarter, unfavorable business conditions persisted due to geopolitical issues, U.S. tariffs, and inflation. Production disruptions caused by component and supply issues from both domestic and overseas suppliers combined with decreased sales in the Middle East region resulted in global wholesale volume declining 6.9% YY to approximately $992,000. Despite these challenges, we achieved continued top-line growth driven by wealth of sales in the North American market and record-high hybrid vehicle sales. Additionally, favorable FX effects from the continued witness of the Korean won contributed to a record-high quarter revenue of $49.2 trillion, representing 1.9% growth YOY. Next is our operating profits. Production disruptions occurred primarily in genesis due to component supply issues from suppliers. This not only resulted in lower sales volumes but also negatively impacted the product mix. Combined with increased incentive spending to respond to intensified competition in major markets and clear inventory of agent models ahead of new model launches, operating profit reached approximately 2.85 trillion won. The operating profit margin declined 1.7% YY to 5.8%. Our domestic plant, which is the largest facility among all global plants, experienced a supply interruption of engine valves due to a fire at our component supplier. This resulted in production delays affecting Hyundai's major volume models and Genesis vehicles. To minimize production losses, we made efforts to shift production to alternative vehicle models. By May, we successfully completed the development and application of substituted engine valves across all products. However, since most of the affected vehicle models were high-margin vehicles, the product mix deteriorated in the second quarter, which had a negative impact on operating profit. Additionally, a fire at Hyundai Mobis India plant caused temporary production disruptions at our HMI plant. To minimize the impact of these domestic and international production disruptions, we maximized the use of existing inventory in the second quarter, and we expect to recover these losses in the second half to expand these productions. Due to the Middle East conflict and inflationary pressures, prices of key raw materials such as plastics have risen sharply. In the second quarter, raw material costs increased by around $400 billion. However, to offset this impact, we have implemented company-wide material cost reduction initiatives, successfully offsetting approximately 50% of the negative impact from raw material price increases. We continue to pursue these cost reduction efforts. As major raw material prices have begun to trend downward in the second half of the year, We anticipate that the negative impact on product profitability from rising raw material cost will be further reduced in the second half. In addition, I will explain the major factors affecting our financial results, including incentives and currency exchange effects. First, we expanded incentives in response to the abolition of the US IRA and the aggressive market entry and sales expansion of Chinese electric vehicles in Europe. Additionally, ahead of new model launches in the second half, we executed incentives to clear inventory of agent models, which resulted in expanded incentive spending in the second quarter. However, as major new models launch in the second half, we are targeting a normalization of incentive spending in the second half. Finally, regarding currency exchange rates, as the Korean won continued to weaken, the average exchange rate increased compared to the same period last year, resulting in a favorable currency exchange effect. However, the quarter end exchange rate also increased, which created a negative currency change effect on credit provisions, offsetting a significant portion of the positive effect. In this manner, HMC has endured an increasingly challenging business environment, including unfavorable operating conditions across the entire automotive industry and temporary component supply disruptions. Based on our diversified power train and regional portfolios, we have demonstrated rapid and flexible responsiveness to changes in internal and external business environments to minimize negative impacts. As a result, alongside revenue growth, our profitability has continued to improve following the turnaround that began in the first quarter, and we have recorded relatively favorable performance in the second quarter. We aim to continue improving our performance in the second half and demonstrate our market competitiveness. The component supply issues mentioned earlier have normalized at this point, and we plan to recover the production losses from the first half to expanded production in the second half. Additionally, in the second half, we have scheduled the launch of the Hyundai Grand Gervais left hybrid sales and the Aventa AirPool 4 model change as well as new Genesis models. Through these new model launches and sales, we expect profitability recovery to accelerate in the second half of the year. To this end, we are maintaining our annual operating profit margin guidance of 6.3% to 7.3% without downward revision from our initial guidance at the beginning of the year. Next, I will explain the second quarter dividend. Based on the value of program announced in August 2024, we plan to implement a quarterly dividend of 2,501 per share for both common and preferred shares in the second quarter. The record date for the second quarter dividend is August 31st and the payment date is September 30th. Due to political issues, intensifying competition and trade policies continue to create a challenging business environment and global automotive companies are facing unprecedented difficulties. Nevertheless, our company will pursue recovery of first half production losses to expand this production alongside the full scale launch of new models in the second half and through company-wide efforts, including active implementation of contingency plans, will achieve the annual guidance presented at the beginning of the year and strive to demonstrate our fundamentals in the global market. Thank you for your attention. Next, Vice President Young-Suk Lee, the Head of Planning and Finance Division of Hyundai Capital, will assess the Q2 results for the finance business. Good afternoon. I'm Yeongseong Lee, head of finance at Hyundai Capital. I'll present finance businesses' second quarter 2026 results and outlook for the second half. Despite continued external incentives in the second quarter, including prolonged geopolitical risks stemming from the Iran conflict and increased exchange rate volatility in both domestic and global markets, Hyundai Capital and Hyundai Capital America maintained stable performance. This was supported by close collaboration with the group and a strong captive Asset Portfolio. Let me now walk you through the results of each company starting with Hyundai Capital. Leveraging strong credit profit and funding competitiveness, we continue to support the group's vehicle sales through financing programs. As a result, the share of the automotive finance maintained 81% of total earning assets in the second quarter. Despite intensified market competition, earning assets grew 3.8% YUI driven by the expansion of dedicated easy financial products and joint sales promotions with the OEMs. Despite external incentives, interest income increased on the back of the solid asset growth. However, lower gains from the sale of non-supplement loans resulted in operating revenue remaining largely flat YUI. On the expense side, interest costs increased due to higher borrowings supporting asset growth. Funding cost pressures by diversifying our funding mix through new funding instruments and foreign currency borrowings despite the higher interest rate environment. Also, while delinquency rates have been rising across the financial industry, our delinquency ratio improved by 11 basis points YOY to 0.78% as of the end of June. Although lower credit costs reflected improved Asset quality, total operating expenses increased 3% YY, mainly due to higher SG&E expenses, including payroll costs and additional provisions related to lease assets. As a result, operating profit declined 23% YY. However, driven by improved performance at overseas affiliates such as the UK, France, and Germany, equity earnings increased 26% YY. Consequently, our net income increased 2.3% YY. Looking ahead to the second half, along with prolonged geopolitical difficulties, increased volatility in funding markets following the Bank of Korea's recent base rate hike on July 16 will create challenges for us. To navigate this environment will further strengthen funding stability to optimize financing strategies tailored to market conditions, including favorable foreign currency borrowings and funding opportunities linked to investment demand from tech companies. At the same time, we'll continue to focus on high-quality assets and rigorous credit risk management to minimize risk. We also plan to successfully complete the launch of our India Finance subsidiary, which is currently in the final stages of preparation, and further expand our operations in Australia and Indonesia. We'll continue to strengthen our role as the group's global mobility finance partner and reinforce our captive finance franchise. Next is Hyundai Capital America, or HCI. Supported by strong vehicle sales from the group, driven by robust demand for hybrid vehicles in the U.S. market, HCA maintained a high penetration rate, resulting in 11% YY growth in total earnings sales. Operating revenue increased 21% YY, driven by continued asset growth and higher finance and lease income. Operating expenses increased 22% YY, reflecting higher lease depreciation expenses as well as increased interest expense. associated with larger funding requirements to support asset growth. While delinquency rates were higher than a year ago due to ongoing microeconomic uncertainty, quarterly delinquency trends continued to improve following the first quarter. Also, we continue to maintain a high-quality portfolio with prime customers representing 88% of total assets. Based on this, HCA's operating profit increased 9.7% YOY, while net income increased 9.76%, delivering solid financial performance. In the second half, market volatility in the U.S. will increase, driven by persistent inflationary pressures and geopolitical conflicts. Nevertheless, leveraging its strong credit ratings and funding competitiveness, the company has secured ample liquidity and is well prepared for potential market disruptions. In the second half, we'll continue to work closely with the group to support vehicle sales financing, respond flexibly to changing market conditions. This concludes the presentation on the financial business. Thank you for your attention. With that, we'll conclude the presentation and take your questions.