How Hyundai Motor should handle cooling EV demand

Fitch Ratings' senior director Pak Jeong-min said Hyundai Motor Group needs to diversify its EV lineup while bolstering its premium models to secure stable profitability.

Pak Jeong-min, senior director at Fitch Ratings [FITCH RATINGS]

[INTERVIEW]

Fitch Ratings’ recent upgrade of Hyundai Motor to an A- doesn’t necessarily mean it is clear of its ambiguous brand position, stuck between the premium and mass-market dimensions, says Pak Jeong-min, senior director at the rating agency.

While a diversification of its lineup is desperately needed in the face of weakening EV demand, the automaker must also home in more on high-margin premium vehicles to secure stable profitability.

“Hyundai’s brand position is still at the in-between stage in the global auto market; we don't really call it premium like Mercedes and BMW,” Pak said. “It should secure more stable profitability by focusing on its high-margin Genesis brand and SUVs.”

Pak was primarily engaged in Fitch’s recent upgrade of Hyundai Motor and Kia’s ratings to A-, the first upgrade since May 2012 when the company was given a BBB+. The upward adjustment saw the Korean car group break into Fitch's seventh-highest tier among its 20 ratings from AAA to CCC.

Only five other automakers have an A rating from Fitch — Toyota, Mercedes-Benz, Volkswagen and two Chinese firms.

“Fitch gave Hyundai and Kia credit for its stable growth in market share in global markets including the United States and Europe,” Pak said. “But Hyundai’s low exposure in China remains one of the few risks.”

In terms of combined sales of Hyundai Motor and Kia, the motor group maintained its No. 3 position last year, beating General Motors and Stellantis.

At the same time, however, Hyundai and Kia’s share in the Chinese market dropped to an all-time low of 1.4 percent. The share has been on a steep decline since 2016 when tensions between Korea and China heightened due to the deployment of the Terminal High Altitude Area Defense system, or Thaad, on Korean soil.

Pak estimated that the EV sales slowdown will continue for a while, and to tackle that, Hyundai’s next step is to focus on its "premium" lineup to secure stability in profit figures.

“The EV market’s slump in growth is steeper than expected and the auto market itself carries lots of variables,” Pak added. “Premium vehicles are good options to reduce variability.”

Mitigating variability remains one of the top priorities for manufacturers like Hyundai and Kia, whose bottom lines are highly affected by currency exchange rates. The automakers currently produce most of their EVs in Korea for export.

Toyota Motor, which has the strong Lexus luxury brand under its umbrella, is rated A+ by Fitch, while the agency last year upgraded Mercedes to an A.

“Volkswagen is at the same A- rating as Hyundai, but we consider the German maker to be in a stronger market position” due to its lineup diversification, Pak explained.

When asked about the impacts of the Inflation Reduction Act, she said Hyundai is not in such a disadvantageous position.

“The IRA is not a big threat to Hyundai,” Pak explained. “But Hyundai has other strong models, including gasoline-powered cars and hybrids, that can fill up the EV sales.”

“But most importantly, Hyundai’s share in the U.S. EV market did not drop even after the IRA, thanks to its well-targeted expansion of lease programs.”

Hyundai and Kia sold a total of 94,340 EVs in the U.S. market last year, becoming the No. 2 EV automaker with 7.8 percent of the market share, beating General Motors and Ford. Tesla was No. 1 with 55.1 percent, according to data from California-based Kelley Blue Book.

It’s the first time they grabbed second place since Kia entered the U.S. market in 2014 with its electric Soul small SUV.

BY SARAH CHEA [chea.sarah@joongang.co.kr]