Hyundai Motor Company

Hello. This is Michael Yun, Head of IR Group.

Welcome, everyone, to Hyundai Motor Company's 2025 Q3 Business Results Conference Call. On behalf of Hyundai Motor Company, I appreciate your time for participating in today's call.

Please refer to the presentation HMC 2025 Q3 business results on our IR website. This presentation includes quarterly key messages, sales performance and profit analysis and for quarterly summarized cash flow statement and detailed regional sales breakdowns, please refer to the appendix.

First, Q3 key messages. Despite concerns over tariff impact and the resulting slowdown in demand, strong sales performance led to the highest third quarter revenue on record.

Particularly in the U.S. market, we reached a record high quarterly market share of 6.3% post-COVID, driven by strong sales of volume models and hybrids such as the Palisade.

This led to an all-time high hybrid sales mix of 20.4%. Finally, following the previous quarter in which the combined share of hybrid and Genesis sales surpassed 20% for the first time ever, this third quarter also recorded 29%.

Next, the sales performance. In the third quarter of 2025, global wholesale records recorded 1.04 million units, an increase of 2.6% compared to the previous year, while retail sales also reached 1.04 million units, reflecting a 4.8% increase year-over-year.

Next, I will go over details about the increase or decrease in the wholesale sales through key market summaries. In the U.S.

market, sales increased by 2.4% year-over-year, totaling 257,446 units. We continue to see strong growth led by SUV and hybrid sales and especially hybrids accounted for a record high 20.4% of total sales.

Sales of eco-friendly vehicles, including EVs and hybrids, rose 16.4% year-over-year, reaching 70,680 units. Due to concentrated demand ahead of the termination of EV subsidy programs, EV retail sales surged 90.3% year-over-year.

Going forward, we will leverage the launch of the new Palisade hybrid to drive incremental growth and strengthen our market share. In Europe, sales increased 8.3% year-over-year, totaling 150,123 units.

Growth in key markets such as the U.K. during the September peak season as well as Turkiye and Spain contributed to the overall sales expansion in the region.

Sales of eco-friendly vehicles rose 41.6% year-over-year, reaching 73,990 units, driven by a strategic increase in the share of electrified models. Despite reductions in EV subsidies across major markets, we continue to expand our EV sales mix, reaching 49.3%, driven by the strong performance of the in-store.

We will pursue our annual sales targets through strategic allocation of new models such as the Inster and IONIQ 9 alongside optimized sales strategies tailored to each market. In the domestic market, sales increased by 6.3% year-over-year, totaling 180,558 units.

Driven by the new model effects of the Palisade and IONIQ 9, we maintained a high proportion of the SUV sales. Sales of eco-friendly vehicles reached 69,259 units, a 28.7% year-over-year increase, supported by the strengthening of our EV lineup.

Despite intensified competition from rival hybrid model launches, strong sales of the Palisade Hybrid drove hybrid sales to grow 22.6% year-on-year. Next, I will explain the sales analysis by vehicle types.

Global SUV sales, including Genesis, totaled 659,024 units, accounting for 63.5% of total sales. Global passenger vehicle sales reached 327,099 units, representing 31.5% of total sales.

The trend of a high proportion of SUVs continues, supported by the enhancement of our key SUV lineup, including the new Palisade. Eco-friendly vehicle sales increased by 24.8% year-on-year, driven by a shift towards eco-friendly models in Europe to meet emission regulations and strong sales in the U.S.

market. EV sales rose 24.6% year-on-year, supported by robust EV growth in Europe, while hybrid sales continued their strong momentum, growing 22.9% year-on-year.

This concludes the discussion on sales, and I will now provide an explanation regarding profits and losses. This page first summarizes our income statement.

Consolidated revenue increased by 8.8% year-over-year to KRW 46.7 trillion, and operating income decreased by 29.2% year-over-year to KRW 2.5 trillion. The Automotive Division's revenue increased by 7.9% year-over-year due to favorable FX environment and expansion in high-value segment, especially hybrid vehicles.

The operating profit decreased by 48.7% year-over-year with tariff impact in the U.S. market and general increase in incentives.

Revenue from finance division increased by 10.7% year-over-year due to continuous growth in the U.S. market penetration rate and asset size.

Operating profit increased by 32.4%. Net income decreased by 20.5% year-over-year to KRW 2.5 trillion.

Next is quarterly revenue and operating income analysis. Revenue benefited from favorable exchange rates contributing KRW 849.3 billion and increased global wholesale sales added a volume effect of KRW 617.8 billion.

Additionally, an improved mix driven by higher hybrid and Genesis sales contributed KRW 1.23 trillion. Combined with growth in the Financial segment, total revenue rose 8.8% year-on-year.

Despite a record high third quarter revenue, unfavorable business conditions negatively impacted our profitability, including the full effect of tariffs, negative foreign exchange impact on sales warranty provisions due to quarter end exchange rate increase and higher incentives driven by intensified competition in key markets. Although contingency plan partially offset tariff effects, the operating profit decreased by 29.2% year-over-year.

Our Q3 cost of goods sold ratio recorded 82.3%, a 2.1 percentage point increase year-over-year. SG&A recorded KRW 5.7 trillion, which is a 16.9% increase compared to last year due to the increase of marketing-related expenses and warranty.

Finally, our net profit decreased by 20.5% to KRW 2.5 trillion. That concludes the end of the presentation of the 2025 Q3 business results.

Thank you. Next, Executive Vice President, Seung Jo Lee, the Head of Planning and Finance Division, will assess the company's business results in Q3.

Good afternoon. This is Executive Vice President, Seung Jo Lee, Head of the Finance Division.

I will now present Hyundai Motor Company Q3 2025 business performance and Q3 dividend and shareholder return policies. Sales revenue reached KRW 46.7 trillion, an increase of KRW 3.8 trillion compared to the same quarter last year.

This was driven by strong sales in the North American market and an overall increase in sales volume. Additionally, the rising proportion of hybrid vehicle sales contributed to the growth along with increased sales of high-value models.

Operating profit saw a KRW 1.8 trillion decline due to the full impact of tariffs. However, the tariff impact was partially offset by the proactive implementation of contingency plans.

Moreover, due to the rising trends in average market incentives across major regions, incentives increased by KRW 212.1 billion compared to the same quarter last year. Despite a KRW 26 increase in the average won-dollar exchange rate compared to the same period last year, a sharp rise in the exchange rate at the end of the quarter resulted in a negative FX effect of KRW 280.7 billion.

Nonetheless, the combined share of hybrid and Genesis vehicle sales based on wholesale volume reached 21%, surpassing the 20% mark for the second consecutive quarter of first in history. This improvement in fundamentals, along with active efforts to mitigate tariff impacts enabled the company to achieve operating profit of approximately KRW 2.5 trillion and an operating margin of 5.4%, in line with market consensus.

For the full year 2025 performance, in line with the updated annual guidance shared during the recent CEO Investor Day, we expect to achieve a sales growth rate of 5% to 6% and an operating margin of 6% to 7%. Next, let me address the dividend for the third quarter of 2025.

In accordance with the value of program announced in August 2024, we plan to distribute a quarterly dividend of KRW 2,500 per share for both common and preferred stocks. The record date for the Q3 dividend is November 30, and the payment date is December 31st.

Next, I would like to elaborate on our approach for our shareholders' return policy, which targets a TSR of at least 35%. This shareholder return policy or TSR also reflects a dividend policy with a minimum payout ratio of 25%.

And the basis for calculating TSR similar to the payout ratio is annual net income attributable to controlling shareholders. Accordingly, at the time of Q4 earnings call in January 2026, we plan to disclose the final dividend amount that meets the minimum TSR of 35%, along with plans for share repurchases or cancellations.

Considering the timing required to calculate TSR based on final net income after the annual closing, we will provide further details then. We intend to maintain the same approach going forward.

While share purchases and cancellations may be executed at any time during the year through Board resolutions, given the nature of our shareholder return policy, which is based on profit, the portion of share repurchases and cancellations required to meet the TSR target of 35% will be finalized at the time of annual results announcement. Despite an increasingly uncertain business environment driven by tariff impacts and other factors, we have been making every effort as an individual company to maximize profitability and strengthen fundamentals.

This includes implementing contingency plan to actively offset the tariff impact. Additionally, the final agreement on a 15% tariff will reduce the burden compared to previous levels.

In the mid to long term, we anticipate that this will contribute to achieving the annual operating profit target ranges outlined during the CEO Investor Day in September. We will provide additional communication to the market as soon as possible.

We sincerely appreciate the continued support of our shareholders and investors. Thank you for listening.

Next, Vice President, Hyungseok Lee, the Head of Planning and Finance Division of Hyundai Capital, will assess the Q3 results for the finance business.

Good afternoon. I'm Hyungseok Lee, Head of Finance at Hyundai Capital.

Let me now present the finance sector's Q3 2025 performance and Q4 outlook. In the first quarter, Hyundai Capital and Hyundai Capital America continued to support vehicle sales as the group's captive finance companies, delivering solid results.

I will now continue with the detailed performance by company. First is Hyundai Capital.

Despite sluggish domestic demand and weakened consumer sentiment, we expanded collaboration with the group and launched specialized financing products for SUVs and Genesis models, driving active sales efforts. As a result, new car installment volume rose 40.1% year-over-year, leading to a 2.7% increase in product assets.

The share of auto finance within total assets rose to 83%. Although loan interest income declined due to regulatory impact, lease interest income and gains on sales of loans receivable increased, resulting in a slight year-over-year growth in operating revenue, excluding FX effect and derivatives.

We have achieved 75% of our annual funding target and including Green bonds in April, sustainability-linked bonds in July and social bonds in September, 21% of our domestic bonds were issued as ESG bonds. We also continued efforts to reduce funding costs through a diversified portfolio, including overseas bonds and ABS, leading to a 2.8% year-over-year decrease in interest expenses.

In terms of asset soundness, while the capital industry overall saw deterioration due to real estate PF and unsecured loans, Hyundai Capital maintained a sound portfolio centered in auto finance and actively sold distressed debt. As a result, our delinquency rate hit a record low of 0.77% in Q3 and credit loss expenses also declined.

Operating expenses fell 2.1% year-over-year and operating profit rose 34.7%. And including equity method gains from overseas subsidiaries, pretax profit increased 44.6% year-over-year.

In the fourth quarter, we will continue our efforts to defend profitability through cost and funding efficiency, while proactively securing liquidity to strengthen financial stability amid rising market volatility. We also plan to ramp up operations at our newly launched Indonesian subsidiary in September and diversify our auto finance offerings to further support the group's global vehicle sales.

Next is Hyundai Capital America or HCA. In the third quarter, supported by strong vehicle sales across the group, HCA's acquisition rate rose to 75.1%.

Combined with expansion of EV lease volumes, total product assets grew 18.6% year-over-year. Driven by growth in eco-friendly vehicle leases and rising product interest rate, operating revenue increased 7.3% compared to the same period last year.

On the funding side, HCA successfully issued USD 2 billion in bonds in September, achieving 88% of its annual funding target. Despite volatility in the U.S.

financial market, cumulative bond issuance reached $11.3 billion this year. As a result, total borrowings increased and interest expenses rose 16.9% year-over-year in Q3.

In terms of asset soundness, over 85% of customers are prime rated and less than 1% are subprime, reflecting our strict credit management. This contributed to a decline in delinquency rate.

However, additional provisions were made in response to macroeconomic uncertainty and asset growth led to a 6.3% increase in operating expenses. Reflecting this, our operating profit rose 28% year-over-year.

Looking ahead to Q4, we expect a challenging environment due to continued inflation, reduced consumer purchasing power, the termination of IRI subsidies and slowing demand. However, HCA has secured $19 billion in liquidity as of the end of September and is actively managing residual value risk through remarketing efforts.

We will continue to strengthen business synergies with this group through sales finance collaboration, closely monitor market conditions and respond flexibly. This concludes my presentation.

Thank you for listening.

With that, we will conclude the presentation and take your questions.

[Interpreted] I am Hwang Paul from Citi Securities. I have two questions.

First regarding tariffs, next regarding performance. So going on to my first question, so just today, to confirm that tariff will be 15%.

You might not be able to give us much details, but what would be the overall direction now that you know that the tariff is set to 15%? For example, what would be the mid- to long-term strategy, and what will be the direction that Hyundai Motors will be taking?

So if there's anything concrete or details that you could share, that would be appreciated. My second question is regarding performance.

You did mention in Q3 that the effective tariff, what that was. But what are the non-tariff effects that will take into -- that you need to take into account?

You said that you were able to buck off tariff by 40% in Q3 and mitigated by 5%. But is there any more room to further mitigate the impact of tariffs?

And how can you quantify that effect by what? So is there an example that you give us?

And finally, the effect of the mix -- the product mix, what do you see the changes in that in terms of Q4 and for the next year?

[Interpreted] Thank you for your question. To answer your first question regarding tariffs, yes, we did see a good news regarding the 15% agreement on tariff.

So that's very good news for us. But regarding specific numbers, the detailed numbers for the future, we still are in the process of calculating these numbers because the government has recently announced that it will be retrospectively reflected as of 1st of November.

But the specific date and what direction the government is going to take has not been announced. So -- and I think the government is still in the process of trying to see how we can maximize the benefits on this.

So my answer to your question would be that the numbers are still being calculated. So with the government's efforts making fruitful results, right?

I think the biggest win for us was that the unclearness, the uncertainties regarding tariff is now cleared. We now know what the conclusion is.

So that would -- we know -- we now know how to operate in the future, and we now have a clearer direction on which way we need to operate. So that will be the biggest benefit impact for us regarding non-price factors.

Regarding what we can share in terms of any specific number strategies or our response, we have been emphasizing from the very beginning of the year that with the cost going up due to tariffs, this will be taken as an opportunity for us to re-diagnose what our core competitiveness is, what our capacity is and also an opportunity for us to change our fundamentals so that we can secure our future competitiveness. And as part of that process to improve our fundamentals, we are looking into identifying various collaborative projects that are out there, and we are regularly checking what performance are being made through these projects.

So I will give you a couple of examples. I mean we do have plans for all of these projects, but we cannot share everything.

So just to point out some of the key examples. In the past, we focus our cost saving efforts on new models.

Of course, some efforts are being made for models that are already being produced. However, as of this year, we will be making same efforts for cost reductions, for not just the new cars, but also the cars that are already in production by improving the R&D competitiveness.

And also with hybrid becoming ever more important, and we're also expanding sales of our hybrid models, and we are able to, through this effort, secure profitability that is pretty much on par with ICE vehicles as well. So we believe that improving and securing the cost competitiveness of hybrid systems are extremely important.

And now we have made this opportunity where we can review the mid- to long-term cost structure of our hybrid model. Another example would be in the past, we were emphasizing how we are going to expand the commonization of parts, common use of parts.

And now that is just a given. That is something that we need to do.

But from now on, we're also trying to expand the common use and commonalities for manufacturing itself, how we can share the manufacturing cost and competitiveness is something that we're focusing on. So all the efforts that are currently in progress regarding these projects, we believe that the outcome and the actual performance will be seen as of next year.

And you all know that during COVID-19, we were one of the key OEMs that were able to continue growth and take the prices as an opportunity for opportunity. So we do have that experience.

And even right now, we believe that it will be a big chance for us to reflect on our key competitiveness and also to continue strengthening our competitiveness. Now to address your second question, what were some of the non-price efforts that were made to offset the tariff.

Actually, we've already offset the tariff impact by 60% and a majority of the efforts that we have made are -- were non-price efforts rather than price, for example, saving the material costs and also regarding the current account. I think, we saved over KRW 700 billion in terms of the final effect.

We also are looking to all other areas, for example, the product mix as well as the service areas. So I cannot really pinpoint out a specific area that we are looking into because we are covering everything in all areas regarding how we can save cost.

As for the price area, like we said that we are trying to take the fast follower strategy, so we are closely monitoring the market to see what actions we can take and the decision will be made later on with that kind of monitoring result is seen. However, our key fundamental is not to hurt the customer value.

And you also asked regarding what will be the mix impact for Q4 in next year. You already know that we are continuously trying to expand our sales proportion for hybrid and Genesis.

So that effort will continue. And next year, we will be aggressively launching new cars, which will allow us to go into a golden model cycle.

And with the launch of new cars, the incentive will obviously go down. So next year, we will continue to improve our mix.

[Interpreted] I'm Yoo Ji-Woong from DAOL Securities. I have two questions.

My first question is regarding the EV strategy in the U.S. market.

As we see the fourth quarter, the sales volume will go down and then the incentives will go up, which will obviously help you to improve your profitability. However, someday when the subsidies are gone, then there should be a new strategy for you to make a reentry into this market.

So I was wondering what kind of short term and also the long-term strategy in the coming years in 2027 and 2028. My next question is regarding our key models such as Palisade.

So I know that you are currently making export to the U.S. market for our key models like Palisade and other SUVs.

And like you said, the current situation of tariff rate going down from 25% to 15% is indeed favorable to HMC. However, if you see our competitors -- your competitors that in the mid-SUV segment, a lot of them are locally producing vehicles in the U.S.

So I was wondering what kind of response strategy you have for the key models that you are not producing in the U.S. market?

Let me answer your first question about profitability and the third -- when we look at the profitability in the third quarter performance, of course, with the IRA subsidy gone in September, in order to retain our inventory level in the U.S., we have increased our promotional activities, which has resulted in EV sales going up. So like you said, in fourth quarter, the incentive level will go down.

In the coming years, in 2027 and 2028 in the EU, obviously, we need to ramp up our EV sales in order to respond to the emissions regulations. And in the U.S., we have originally designed the HMGMA plant as an EV dedicated plant.

However, we are trying to produce all the different kinds of model, not just the EV models. So therefore, when we think about the U.S., the EV will not make up a significant growth in the short period of time.

But in the long term, from 2030 or so on, the EV volume will likely recover. That may be a little bit slower than the two years that have been initially expected with the EV chasm going up, but we are expecting EV volume to recover in the long run.

And I'm not pretty sure I understood your question regarding the incentive improvement and reentry into the market, but you said in the fourth quarter, if there will be a decrease in the volume, then the incentive will likely improve, and you may think about the reentry into the U.S. market.

And I'd like to clarify that we have never backed off from the market. So we will continue to increase our sales volume going forward.

And about the competitiveness enhancement activities, although I have not shared you all the details due to time constraints such as PE parts, but we are actually engaging in various activities to enhance competitiveness and PE part is one of them. And for PE parts activities, we can say that batteries and motors and other EV dedicated parts are included.

And previously, we only focused on reducing the raw material cost of these parts, such as battery and motors. But now we are examining all the different types of parts because irrelevant of how costly or non-costly it is, I think in the long run, all the parts are important for the competitiveness of our [ SUVs.

] So that is why we are reviewing all the different activities. So regarding your second question, like you said, we are not currently locally producing our mid SUV segment, but we are locally producing Tucson.

And like we have mentioned at our CID, we are increasing our proportion of U.S. local production.

And from the fourth quarter, the new Palisade hybrid model will be launched, and we'll start selling that model. And thanks to the good news of yesterday of rate decrease from 25% to 15%.

Since Palisade is a very profitable model, we will likely to improve our profit on this model as well. And regarding the local production of Palisade hybrid model in the U.S., we are internally reviewing this matter.

And although nothing has been confirmed as of yet, we will likely increase the production incrementally of this model like we said in -- at the CID.

I have two questions. So the first one is, I think, following up on earlier question about your U.S.

EV strategy. You mentioned that you are not planning to break down on your original plan.

So can you confirm that it is the plan for you to continue with your EV strategy in the U.S.? And also, I guess, in relation to this, I understand that you also have a number of JVs in the U.S.

producing batteries. What are your general plans on those JVs producing batteries for EVs in the U.S.?

[Interpreted] Hi, Theo, this is Zayong Koo. Basically, on your first question, I think our CFO has actually answered many of that before.

Basically, our EV strategy will continue. As we earlier mentioned, I think the timing is a bit pushed back, but nevertheless, we do believe that the EV will continue to grow.

In the past, we had anticipated that will be maybe in the next 2 or 3 years. However, as we had pointed out in the CEO Investor Day, we are looking more at hybrids at least for the short to medium term, but EV from a longer term is on schedule basically from that perspective.

Again, although it is a bit delayed. And your second question was on the battery JV.

Yes, as you know, we do have two battery JVs, one with LG and the other is SK. That is actually continuing -- we don't have an exact timetable, but it will hopefully be in the next -- in the short term.

Basically, I cannot give you an exact timing, but nevertheless, we are -- we will be working with LG and SK in acquiring or getting the batteries for the U.S. market.

And again, this is a little bit more related to the timing of the EVs in general. So I mean, we are definitely moving along -- moving ahead with the joint venture.

But nevertheless, the exact timing, I cannot give you, as I mentioned earlier.

[Interpreted] That ends the Q3 2025 earnings call for Hyundai Motor Company. Thank you for your time.