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Hyundai Motor’s Q2 profit at eight-year high on weak won, strong demand

A Hyundai sign is seen outside a car showroom in Bletchley, Milton Keynes, Britain May 31, 2020. REUTERS/Andrew Boyers

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SEOUL, July 21 (Reuters) – Hyundai Motor Co (005380.KS) posted its best quarterly profit in eight years on Thursday as a weak won boosted the value of its overseas earnings and demand remained strong for the high-margin South Korean automaker. sport utility vehicles (SUVs).

Although the chip shortage is easing, one of the world’s largest automakers, including subsidiary Kia Corp, pointed to challenges such as demand dampened by inflation, higher marketing costs in a context of tougher competition and supply difficulties.

Net profit rose to 2.8 trillion won ($2.13 billion) for the April-June period from 1.8 trillion a year earlier, beating Refinitiv SmartEstimate’s average analyst forecast of 2.2 trillion.

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“A combination of robust sales of luxury SUV and Genesis models, reduced incentives from lower inventory levels and a favorable currency environment contributed to higher second-quarter revenues,” the company said in a statement. .

This happened despite a slowdown in sales in an unfavorable economic environment, he added.

The alleviation of a global chip shortage has helped Hyundai resume overtime and weekend shifts at domestic factories, to make up for lost vehicle production due to a nationwide strike by truckers in June, the report said. said analysts. Read more

The company maintained its full-year revenue and margin guidance, saying it expected a gradual recovery from the chip and component shortage that led to a 5.3% drop in sales in the second quarter of the year.

Hyundai said it plans to increase vehicle production in the second half to meet consumer demand, although it still expects supply chain disruptions and fluctuating material costs. raw.

However, inflation and associated economic downturns pose some risks to demand in the second half as consumers lose purchasing power and interest rates rise, chief investor relations Zayong Koo said. during a call for results.

Hyundai shares closed flat against a 0.9% rise in the benchmark KOSPI (.KS11).

“Rising interest rates mean higher borrowing costs for consumers,” said Kevin Yoo, analyst at Daol Investment & Securities.

“With record inflation in major economies, financing the purchase of cars would become even more expensive, which is essentially not a good market condition for automakers.”

However, higher interest rates will likely take months to dampen demand for cars as supply was still tight amid pent-up demand from the coronavirus pandemic, he added.

Hyundai is also facing a rising wage bill after a nationwide union agreement that raises each worker’s annual salary by 9%, in a bid to stave off strikes and production losses at its largest manufacturing base. Read more

The deal came days after Hyundai announced it would invest about 2 trillion won to build a dedicated electric vehicle (EV) plant, its first new car factory in South Korea in nearly three decades. Read more

In May, Hyundai announced it would invest more than $10 billion in the United States by 2025, including $5.5 billion in the state of Georgia to build electric vehicle and battery facilities. Read more

($1 = 1,312.1200 won)

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Reporting by Heekyong Yang and Byungwook Kim; Editing by Stephen Coates and Clarence Fernandez

Our standards: The Thomson Reuters Trust Principles.