Kia outpaces Tesla in profitability

Years of cost-cutting efforts prove effective in elevating carmaker’s global competitiveness

The New Kia EV9 (Kia)

Hyundai Motor Group’s smaller affiliate Kia outpaced Tesla in operating profit margin in the first three months this year, shedding light on how a legacy carmaker could challenge the world’s top electric vehicle company, an analyst report showed Tuesday.

Kia’s first-quarter operating profit margin came to 12.1 percent, surpassing that of Tesla’s 11 percent, according to the Samsung Securities report.

“Kia could be the only traditional auto maker that can compete head-on with Tesla in profitability,” said Lim Eun-young, a Samsung Securities analyst and author of the report.

Kia was able to boost the profit margin by cutting costs, Lim said, adding that it posted the lowest manufacturing cost per car at $19,000 among global carmakers, as of last year.

Kia’s average selling price of $24,800 was almost half of Tesla’s $46,000 during the January-March period. But it recorded a higher gross profit margin of 22.7 percent than Tesla’s 21.1 percent, the report said, suggesting Kia succeeded in maintaining profitability even though it lowered car prices.

In terms of fixed costs, Kia cut labor expenses to take up 6.7 percent of sales revenue, as of 2022. It reduced workers at production lines and improved work efficiency through facility modernization.

On the other hand, Tesla has seen fixed costs surge to make up 17.6 percent of revenue. Last year, the number of employees came to 127,000 under the goal to produce 1.8 million units per year, almost double that of Hyundai’s 72,600 workers with the same production capacity.

Tesla’s revenue per employee in 2022 was $637,000, half of Kia’s, the report said.

Lim said Kia’s annual operating profit margin is expected to increase to 13 percent in 2025 as a growing number of factory workers at home are expected to start retiring in 2024.

As for Kia’s EVs, Lim said the clean car models will generate more profit than its combustion engine cars from 2026, as the carmaker has set out an aggressive target of launching two to three new electric cars every year.

Kia attributed its success to the leadership of Hyundai Motor Group Executive Chair Chung Euisun, who emphasized the “cost-efficient strategy” when he served as the president of the smaller affiliate in 2005.

“Facing challenges of domestic and global economic slowdown, Chung had led Kia to reduce the overall production cost in the manufacturing phase such as the price of car parts, after discussing with partner companies as well as in the design phase,” said an official from Hyundai Motor Group.

“Kia has saved expenses in research and development because we share the same EV platform made by Hyundai and have been able to create synergy with the parent company in research and car designs,” the official said.

Also, Kia’s budget-friendly cars have garnered traction with high-quality features including an advanced driver assistance system, user-friendly infotainment setup and state-of-the-art design, the official added.

Experts agreed that Chung’s leadership had played a critical role in getting Kia’s business back on track, however, suggested it might not be a fair comparison between Kia and Tesla.

“Kia’s success lies in Chung’s push to make fine-quality and cost-efficient vehicles,” said Park Cheol-wan, a car engineering professor at Seojeong University.

“But I’m not sure if it would be meaningful to compare a legacy carmaker to an EV maker, because they compete in rather different car markets. Tesla, in particular, is playing a chicken game in price, so we’ll have to wait and see if Kia’s EVs will be well received in global markets.”

By Byun Hye-jin(hyejin2@heraldcorp.com)