SEOUL, July 23 (AJP) -Shares of Hyundai Motor have nearly halved from their June peak entering the second half, and the automaker on Thursday signaled its annual sales target could come under pressure as weak European demand offsets resilient profitability.
South Korea's largest automaker reported an operating profit of 2.851 trillion won ($1.94 billion) for the April-June period, down 20.8 percent from a year earlier, even as revenue rose 1.9 percent to a record 49.215 trillion won.
Operating margin narrowed to 5.8 percent from 7.5 percent a year earlier. The results came in slightly below analysts' consensus forecasts of about 2.90 trillion won in operating profit and a 6.0 percent operating margin.
During the earnings conference call, Hyundai said annual wholesale sales could fall short of its original target amid persistent market uncertainty, while maintaining its full-year operating margin guidance of 6.3 percent to 7.3 percent on expectations of a richer product mix and growing hybrid demand.
"Based on current forecasts and various indicators, we may fall short" of the annual wholesale sales target, Chief Financial Officer Lee Seung-joo told analysts, while stopping short of a formal downgrade.
Lee noted Hyundai has missed its annual sales target in each of the past three years while still meeting its revenue and profitability goals. Updated sales assumptions will be presented at the company's Investor Day in late August after gaining greater visibility into second-half market conditions.
Europe has emerged as Hyundai's biggest challenge for the remainder of the year.
Wholesale shipments in the region fell 10.9 percent from a year earlier to 144,000 vehicles as aging core models, including the Tucson and Kona, lost momentum while Chinese electric vehicle makers intensified price competition. Lee said Europe has grown into a larger industry market than the United States, making the slowdown particularly significant for Hyundai.
The company expects the launch of the Ioniq 3, positioned as a competitively priced compact EV, and a redesigned Tucson later this year to strengthen its lineup. Hyundai aims to sell more than 20,000 Ioniq 3 vehicles in the second half, although the redesigned Tucson will not reach Europe until the fourth quarter.
"Hitting our original European target this year will be difficult," Lee said, adding that a more meaningful recovery is likely next year after both new models have been on sale for a full year.
The Ioniq 3 is intended to expand Hyundai's presence in Europe's mass-market EV segment rather than maximize near-term profitability as the company seeks to counter rapidly expanding Chinese rivals.
Much of the second-quarter volume decline stemmed from a fire at an engine-valve supplier that disrupted production at Hyundai's largest domestic plant, halting Genesis and Palisade output for several weeks.
Replacement parts were qualified by May, allowing production to normalize. A separate fire at a Hyundai Mobis supplier also temporarily disrupted production at Hyundai's Indian plant. Global wholesale shipments consequently fell 6.9 percent from a year earlier to 992,000 vehicles.
Despite softer vehicle demand, Hyundai expects profitability to remain resilient thanks to a stronger sales mix.
Hybrid vehicles accounted for a record 18.9 percent of global wholesale shipments during the quarter. In the United States, hybrids represented a record 26.2 percent of sales, helping lift Hyundai's market share to 6.3 percent, up 0.2 percentage point from a year earlier and marking its fifth consecutive quarter above the 6 percent threshold.
The company attributed the decline in operating profit primarily to weaker sales volume, which reduced earnings by 542 billion won, and a less favorable product and incentive mix, which cut another 570 billion won.
Lee said the weaker mix reflected roughly 200 billion won in lost Genesis and Palisade production following the supplier fire, along with about 400 billion won in higher incentives following the repeal of U.S. EV tax credits, intensifying Chinese EV competition in Europe and inventory clearance ahead of new model launches.
Those headwinds were partly offset by roughly 400 billion won from a richer hybrid mix. Favorable exchange rates added 238 billion won, while the financial services division contributed 106 billion won.
Higher raw material costs, driven by Middle East geopolitical tensions and inflation, increased expenses by roughly 400 billion won during the quarter. About half of the increase was offset through cost-cutting measures, with further relief expected in the second half as raw material prices stabilize.
Executives also said U.S. tariff-related costs should become more manageable in the second half because of a more favorable comparison base, although they cautioned that policy uncertainty remains.
Tariff-related costs totaled about 900 billion won in both the first and second quarters, compared with 1.8 trillion won in the third quarter of last year and 1.5 trillion won in the fourth.
Shares of Hyundai Motor closed 3.35 percent higher at 432,000 won on Thursday despite the weaker earnings, though the stock remains about 45 percent below its June 1 peak of 783,000 won.
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