Hyundai Motor's second quarter record revenue masks weakening profitability

Hyundai Motor posted record quarterly revenue during the April-to-June period, driven by hybrid EV sales and favorable dollar-won exchange rates — though its profitability remains sluggish.

The automaker's second quarter revenue rose 1.9 percent from a year earlier to a record 49.22 trillion won ($33.5 billion), the highest ever, according to a company earnings call on Thursday. The figure surpassed the market consensus of 48.37 trillion won compiled by market tracker FnGuide.

The challenge, however, is that operating income and margin continue to decline.

Operating profit fell 20.8 percent from a year earlier in the second quarter to 2.85 trillion won, which fell short of the market prediction of 2.99 trillion won.

Its operating margin, meanwhile, came in at 5.8 percent. The figure has steadily declined from a peak of 9.3 percent in 2023 to 8.3 percent in 2024 and 6.2 percent last year. This year’s first quarter logged a 5.5 percent operating margin.

"The global automotive industry is facing unprecedented challenges, including geopolitical conflicts and intensifying competition, which has led global demand to fall by 3.8 percent from a year earlier," a Hyundai Motor representative said.

The company sold 991,885 vehicles worldwide in the second quarter, down 6.9 percent from a year earlier. Domestic sales alone fell 16.4 percent as a fire at a parts supplier disrupted production.

Tesla is grappling with similar profitability pressures.

The U.S. EV maker’s second quarter net profit fell 5 percent from a year earlier to $1.11 billion, according to its announcement on Wednesday. It was well below the market forecast of $1.3 billion.

Although Tesla’s revenue climbed 26 percent to $28.24 billion from April to June compared to the same period last year, its profitability deteriorated sharply.

Analysts attributed the weaker earnings to price cuts on models including the Model 3 and Model Y, along with higher operating expenses. Increased investment in its autonomous Robotaxi service and AI infrastructure also pushed free cash flow into negative territory, which posted a deficit of $1.09 billion.

“We're investing a lot in growing the core business and really preparing for the future,” Tesla CEO Elon Musk said in a webcast disclosing the second quarter’s financial results. “So this is a massive capex [capital expenditure] year, but I am confident that the businesses we have invested in will bring massive profits.”

Unlike Hyundai, vehicle deliveries for Tesla increased by 25 percent from a year earlier to 480,126 units in this year’s April to June.

Automakers are now under growing pressure to find new ways to improve profitability through aggressive cost reductions.

Hyundai and Kia have recently discussed cutting procurement prices by as much as 20 percent in talks with suppliers over cost-saving measures, according to the auto parts industry.

“Demanding a 20 percent cost reduction from suppliers, which are already operating on margins of just 2 to 3 percent, is practically forcing them out of business,” the Korean Metal Workers' Union said during a press conference on Tuesday.

Labor costs are also under scrutiny. Hyundai Motor Group is preparing to deploy its Atlas humanoid robot on production lines, while Tesla is developing its Optimus robot for manufacturing.

Companies' ability to pursue cost innovation while preserving price competitiveness and supply chain sustainability will be the key to staying in the race, experts say.

"To offset the factors negatively weighing on profitability, we plan to concentrate company-wide capabilities on expanding production and undertaking contingency plans in the second half," a Hyundai spokesperson said. "We will respond more flexibly to market demand by leveraging a diverse powertrain lineup, as well as region-specific product portfolios."

Hyundai executives are also confident that its steady performance can be maintained throughout the year.

"Our operating margin turned around in the first quarter and continues to improve," Lee Seung-jo, the automaker's chief financial officer and chief strategy officer, said during a recent conference call. "Our commitment to achieving our full-year guidance of 6.3 to 7.3 percent implies that growth will continue through the third and fourth quarters. As we continue to perform solidly relative to our competitors, we will strive to maintain an operating margin that ranks among the top in the global automotive industry."

BY KO SUK-HYUN [[email protected]]