Kia Achieves Record Operating Profit Despite Electric Vehicle Slowdown

Achieved record operating profit
Sales are second in history since last year
Responding to the slowdown in electric vehicles with hybrids
Continue to achieve KRW 1 trillion in operating profit every month

Enlarge picture of Hyundai Motor Company, Kia Yangjae Headquarters [사진 제공 = 현대차그룹]

‘13.1%’ Kia once again broke its record for the highest quarterly operating profit ratio ever. Although car sales were down, sales increased and profitability improved as the proportion of expensive vehicles such as recreational vehicles (RVs) sold increased and the effect of the exchange rate was added. It is analyzed that Hyundai Motor Company and Kia Motors have been recording a good performance since the first quarter by responding quickly to changes in the market with hybrid vehicles despite the electric vehicle ‘chasm’ (temporary slowdown in demand).

On the 26th, Kia recorded sales of 26.2129 trillion won and operating profit of 3.4257 trillion won in the first quarter of this year. Sales increased by 10.6% and operating profit by 19.2% compared to the same period last year. Every business’ performance numbers were ‘record breaking’. Sales were the second highest on record since the second quarter of last year, and operating profit was the highest on record. The operating profit ratio also reached an all-time high of 13.1%, up 0.1 percentage point from 13% in the second quarter of last year.

The reason why Kia’s management performance in the first quarter attracts attention is because it was achieved in a situation where car sales volume decreased compared to the previous year. Kia sold 760,515 units in the first quarter, down 1% from the previous year due to the slowdown in the electric vehicle market.

A Kia official explained, “Despite a slight drop in sales, sales increased mainly for expensive cars such as SUVs and eco-friendly cars. As raw material prices fell, material costs fell, and sales in Korean Won increased due to the strong dollar, thereby increase overall profitability.”

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Kia’s operating profit ratio of 13.1% in the first quarter is notable as it is significantly higher than Hyundai Motor Company (8.7%). Recently, Kia has been recording a higher operating profit ratio than Hyundai. Hyundai Motor Company, which announced its performance a day earlier, recorded sales of 40.6585 trillion won and operating profit of 3.5574 trillion won in the first quarter of this year. The operating profit margin is 8.7%.

The fact that Kia is more profitable than Hyundai Motors, including the performance of luxury brand Genesis, is interpreted as a result of a combination of factors such as future business investment and differences in sales shares by major region. The explanation is that the two companies within the same group invest in future businesses in proportion to their sales volume, and the larger Hyundai Motor Company invests more in the fields of hydrogen and future aviation mobility (AAM ). Namyang Research Center, a key research and development center for Hyundai Motor Company and Kia Motors, also belongs to Hyundai Motor Company.

The fact that Kia’s sales share in developed foreign markets such as the United States and Europe is slightly higher than that of Hyundai Motors also explains the high profit. Lim Eun-young, a researcher at Samsung Securities, said, “Cars sold by Kia tend to have advanced features such as driver assistance systems (ADAS) at a high rate,” adding, “Kia’s fixed cost ratio, including labor costs , depreciation, and amortization of intangible assets, lower than that of Hyundai, which is also a factor in the difference in the amount of profit “He said.

Despite the ‘truth’ atmosphere of electric vehicles, hybrid vehicles grew rapidly and led the overall sales performance of environmentally friendly vehicles. Kia is pursuing a strategy to expand hybrid sales in major car models such as Sorento, Carnival, and Sportage in Korea.

Sales of Kia’s eco-friendly cars in the first quarter increased by 18.1% from the previous year to 157,000 units. Of these, 44,000 electric vehicles were sold, up 7.9% from the previous year, but hybrids grew by more than 30%, with 93,000 units sold.

In the future, Kia plans to implement a flexible demand-based production system in response to unstable external environments such as expanding geopolitical risks, a sluggish real economy, and weakening purchasing sentiment due to high interest rates and high prices.

As Kia proposed a goal of ‘annual operating profit of 12 trillion won’ at the beginning of this year, the company is expected to make more efforts to improve profitability by using high-margin models such as hybrid and electric vehicles to ‘achieve monthly operating profit of 1 trillion won.’ .

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