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Hyundai has biggest profit in seven years, warns about chips

Hyundai has biggest profit in seven years, warns about chips
Business
Hyundai Motor Co. posted its biggest profit in seven years, helped by sales of luxury Genesis cars and Ioniq 5 electric vehicles, but warned the global chip shortage could impact third-quarter deliveries.

Operating profit rose to 1.89 trillion won ($1.64 billion) in the three months ended June 30 from 590 billion won a year earlier — the highest since the second quarter of 2014, the South Korean automaker said Thursday. The result was in line with the average analyst estimate of 1.9 trillion, according to data compiled by Bloomberg.

As countries from the U.K. to France look to phase out fossil-fueled cars, Hyundai is joining global rivals such as Volkswagen AG in turning to low-emission vehicles for growth. It started selling the Ioniq 5 EV in Europe and the U.S. this year — the first vehicle produced on its dedicated EV platform — and plans to have more than 12 electric models by 2025.

Hyundai temporarily halted production at its plants globally in the quarter amid the ongoing chip shortage. To minimize the impact, it reduced output of less popular models such as Sonata sedans. Higher raw material costs, such as rubber and steel, are also expected to impact automakers.

“Disruptions in output in May and June are expected to have some impact on sales in the third quarter due to lower inventory,” executive vice-president Gang Hyun Seo said on a call with analysts. “Raw material prices are increasing and this could affect earnings in the second half.”

Hyundai shares closed 0.2 per cent higher in Seoul trading Thursday. The stock has risen 19 per cent this year, compared with a 13 per cent gain in the benchmark Kospi index.

Chip shortage

The shortage of some semiconductors is expected to gradually improve as soon as this quarter, Seo said. The company has shifted to securing chip supplies on an annual basis to help minimize production disruptions, he added, and has already secured supply for this year and next.

Vehicle sales in the U.S. rose 73 per cent in the quarter from a year earlier, while European sales more than doubled. In South Korea, sales dropped 11 per cent.

Separately Thursday, Kia Corp., a unit of Hyundai Motor, posted a record operating profit of 1.49 trillion won in the second quarter, compared with a 145.2 billion won profit a year ago, according to a regulatory filing. That beat the average estimate from analysts of 1.31 trillion won, according to data compiled by Bloomberg.

Shares in Kia closed 0.3 per cent higher, bringing their gains for the year to 40 per cent.

Hyundai Motor Group is looking to add EV production outside South Korea. The group, which comprises Hyundai and Kia, in May said it plans to produce EVs in the U.S. as part of a $7.4-billion investment through 2025 that will also include hydrogen-refueling stations and unmanned flying taxis.

Environmentally friendly policies in the U.S. have made it important for Hyundai to produce EVs there, said Tae Seong Kim, head of global sales operations. The company is considering details of the EV plant, including location and capacity, he said.
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