Hyundai Motor is facing forecasts that operating profit will significantly decrease this year due to high tariffs in the United States. To defend its performance, prices must be raised in the U.S., but if prices rise, they will exceed the price levels of major competitors such as Toyota, so they are cautious and monitoring the situation.
According to the financial investment industry on the 14th, several securities firms have lowered their target stock price for Hyundai Motor. This is due to the expectation that profitability will worsen because of the imposition of tariffs in the U.S. Since April, the Trump administration has been imposing a 25% item-specific tariff on all imported cars.
MERITZ Securities projected in a report last month that “if the tariff rate on imported cars in the U.S. remains, Hyundai Motor's annual operating profit will decrease by 6.26 trillion won.” This is equivalent to 44% of last year's operating profit (14.2396 trillion won). MERITZ Securities also lowered the target stock price for Hyundai Motor from the previous 310,000 won to 265,000 won. Hanwha Investment & Securities stated that Hyundai Motor's operating profit will decrease by 5.4 trillion won this year, lowering its target stock price from 310,000 won to 270,000 won.
According to financial information provider FnGuide, the average forecast (consensus) for Hyundai Motor's second-quarter operating profit by securities firms has been estimated at 3.6 trillion won, a decrease of about 16% compared to the same period last year.
Hyundai Motor is producing locally sold vehicles at its factory in Alabama, U.S. Since October last year, it has also started operating the MetaPlant America (HMGMA) which produces eco-friendly vehicles in Georgia. However, 60% of the vehicles sold in the U.S. are still produced in Korea. Popular hybrid and Genesis vehicles are primarily manufactured and exported from the Ulsan plant.
Lee Seung-jo, head of the finance division at Hyundai Motor, stated during a conference call regarding first-quarter results held in April that “the U.S. sales prices will be frozen for now, but decisions about price increases will be made after observing the situation after June 2.” However, over a month has passed since June 2 without an increase in prices being determined.
Hyundai Motor primarily competes with Japan's Toyota and Honda in the U.S. Until now, Hyundai Motor has targeted the U.S. market by emphasizing that its cars offer slightly lower prices and superior performance compared to these competitors. If Hyundai Motor raises prices first, while Toyota and Honda have yet to determine their price increases, it could raise prices to the point where sales volume dramatically decreases.
Hyundai Motor's midsize sedan Sonata is sold in the U.S. for an average price of $26,650 to $36,745. The competing model, Toyota's Camry, sells for $28,700 to $36,425, while Honda's Accord is priced at $28,295 to $35,600. The base price of the Sonata is 6-7% lower than the Camry and Accord, but the highest price is actually higher.
If Hyundai Motor raises prices by just 10% to mitigate the tariff shock, the highest price of the Sonata would reach $40,000, significantly diminishing its price competitiveness.
Other major volume models sold in the U.S. are in the same situation. The compact sport utility vehicle (SUV) Tucson is priced between $28,000 and $42,970. Toyota RAV4 is priced from $28,850 to $42,355, and Honda CR-V ranges from $30,100 to $42,495. The price differences with competing models from Toyota and Honda are minimal, making it difficult to factor tariffs into prices.
Toyota and Honda are in a similar predicament. If they hastily raise prices, the price differences with Hyundai Motor could widen, making performance defense more challenging. Thus, major automakers selling cars in the U.S. are cautioned, anticipating price increases but unable to decide how much to raise them, merely engaged in a game of 'guessing the moves of others.'
In early this month, Toyota raised its average sales price in the U.S. by $270 (about 400,000 won) per vehicle. However, this increase appears to be a common adjustment occurring during model year changes, and it is still difficult to assert that it reflects the tariff.
An official from the auto industry said, “While inter-country tariffs may decline through negotiations, automobiles are subject to item-specific tariffs, making adjustments challenging.” He added, “It is necessary to increase local production in the U.S., but adjusting the production volume by country is not easy in the short term. There is also a high possibility that electric vehicle sales will decline sharply starting in October when the subsidy period ends, making it difficult for Hyundai Motor to defend its performance.”