SEOUL/SHANGHAI -- Hyundai Motor posted record-high operating profit for the April-June quarter on strong performance in North America and South Korea, but sluggish sales in China reveal stark regional contrasts.
Consolidated operating profit for the second quarter reached 4.23 trillion won ($3.3 billion), a 42% year-on-year increase and the third consecutive quarter the South Korean automaker reached a new high, according to results released Wednesday.
Sales were up 17% to 42.25 trillion won, also a record high. Net profit increased 8% to 3.34 trillion won.
The company also revised its 2023 full-year earnings forecast upward based on the strong performance in the first half. Revenue growth rate was raised to between 14% and 15% from a 10.5% to 11.5% range as of January. Operating profit margin estimates rose to 8% to 9% from 6.5% to 7.5%.
First-half sales were up 21% year-on-year and operating profit margin was 10%. Some in the market expect even further growth.
Hyundai cited easing semiconductor supply shortages and strong demand in major markets as reasons for the profit increase. Earnings were up due to strong sales of sport utility vehicles, which have large profit margins, as well as Hyundai's Genesis luxury car brand.
Electric vehicle sales are also on track, and momentum is expected to continue in the second half of the year.
Performance in North America was particularly strong. Sales in the market, which hovered around 700,000 units in the 2010s, increased to 960,000 units in 2021 and 940,000 units in 2022, despite supply restrictions due to semiconductor shortages that plagued other automakers. Sales in the first half 2023 reached 510,000 units, a record pace.
Hyundai plans to capture a large share of the U.S. electric vehicle market with about $10 billion in investment by 2025. It has spent hundreds of millions of dollars in EV production at an existing plant in the state of Alabama and one in nearby Georgia operated by Kia, a group company.
In addition, the start of production at another EV plant currently under construction in Georgia is being brought forward from first-half 2025 to within 2024.
In India, Hyundai and Kia have a combined 21% market share, second only to Maruti Suzuki. Hyundai has indicated that it intends to acquire a plant in India from General Motors, as it moves to quickly beef up production through mergers and acquisitions.
Hyundai is also looking to grab a piece of the Southeast Asian market, traditionally a stronghold for Japanese carmakers like Toyota Motor, starting operations at an Indonesia factory with a production capacity of 300,000 units in 2022.
Hyundai announced that it will launch its high-performance N brand in China.
© Reuters
Amid the brisk sales and active investments, Hyundai's China business stands in stark contrast. Sales in 2022 stood at 260,000 units, down 77% in just six years from a 2016 peak. Declining sales have led to overcapacity, leading to calls for drastic structural reforms.
In June, Hyundai announced the sale of two of its four remaining plants in China. It will reduce models sold in the market from 13 to eight. Two Beijing plants that the company will keep will also be used as export bases for Southeast Asia. In 2021, the company sold a plant in Beijing to domestic EV startup Li Auto.
Hyundai's local production in China first began in 2002 with the establishment of Beijing Hyundai Motor, a joint venture with Chinese state-owned automaker BAIC Group. Hyundai set China as an engine for growth plans, ramping up production and sales in line with the expansion of the market. At its peak, annual production capacity reached 1.65 million units at five plants combined.
Things took a turn for the worse in 2016. The South Korean government deployed the U.S. military's Terminal High-Altitude Air Defense (THAAD) missile defense system. China objected to the move, claiming the radar could be used for spying within its territory.
A movement to boycott South Korean products spread across the country, hitting Hyundai's sales.
Lack of a concrete marketing strategy for the company's wide range of models also played a part. "We chased sales volume instead of increasing the competitiveness of our products, and weren't able to create a brand," a senior executive at Beijing Hyundai told Chinese media.
Park Jeong-gyu, adjunct professor at Hanyang University, notes that Hyundai built two huge factories in the mid-2010s when it was losing competitiveness, arguing that the root cause of the automaker's trouble in China was its inability to alter its expansion strategy.
Hyundai is finally moving to stop the bleeding in China, but to compete with the world's leading automakers, it will also need measures to catch up in China.
At Auto Shanghai in April, the company announced that it would bring its high-performance N brand to China, revealing plans to focus on high-value-added vehicles.
