Tariff Pressures Erode Profitability

Hyundai Motor Co. (KRX: 005380) faced one of its most challenging quarters in recent years as U.S. import tariffs weighed heavily on its bottom line. The automaker reported a 29% decline in operating profit for the third quarter, falling to ₩2.5 trillion ($1.76 billion) from ₩3.6 trillion ($2.53 billion) a year earlier.

The steep decline came despite steady demand and favorable exchange rates, as the 25% U.S. tariff on imported vehicles cut deeply into Hyundai’s profit margins. The company reported that tariff-related costs surged to ₩1.8 trillion ($1.26 billion) in Q3, nearly doubling from the previous quarter.

Solid Revenue Growth Amid Headwinds

Hyundai’s total revenue increased by 8.8% year-over-year to ₩46.7 trillion ($32.8 billion), exceeding analyst forecasts. Growth was driven by higher shipments to Europe, strong demand for SUVs and EVs, and continued resilience in the domestic market.

However, profit margins narrowed significantly due to rising tariff costs, higher logistics expenses, and raw material inflation. Hyundai’s operating margin fell to 5.4%, compared with 8.1% a year ago, reflecting the heavy impact of trade headwinds.

Strategic Response and Localization Push

In response to the tariff burden, Hyundai is accelerating its localization strategy in North America. The automaker plans to expand its U.S. manufacturing footprint, with its Georgia EV and battery plants expected to begin full-scale operations in 2026.

Hyundai’s goal is to localize more than 70% of its U.S.-bound vehicle production by 2027, reducing tariff exposure and strengthening competitiveness against domestic and Japanese automakers. The company reaffirmed its long-term electrification roadmap, targeting 2 million global EV sales by 2030.

Executives emphasized that the short-term profit impact will pave the way for stronger operational efficiency and long-term margin recovery once U.S. production scales up.

Guidance and Profitability Outlook

Despite the weaker third-quarter results, Hyundai maintained its 2025 full-year guidance, projecting high single-digit revenue growth and an operating margin in the 6–7% range. Capital expenditures (CapEx) are expected to reach ₩12 trillion ($8.43 billion), focusing on electric vehicle production, AI-based mobility technologies, and advanced manufacturing systems.

Chief Financial Officer Kim Kyung-bae stated that Hyundai is optimizing its production footprint and supply chain to mitigate tariff and logistics pressures. He added that strategic U.S. investments are expected to start delivering tangible margin relief from 2026 onward.

Analyst and Market Reaction

Analysts described Hyundai’s results as “resilient under pressure,” noting that strong revenue growth and disciplined cost management softened the tariff impact. Major investment houses maintained positive ratings on Hyundai, emphasizing its healthy balance sheet and consistent execution of its EV strategy.

Hyundai Motor shares fell 2.1% in Seoul following the earnings announcement, reflecting investor caution over the timeline for tariff relief and market volatility.

The Bottom Line

Hyundai’s third-quarter performance underscores the challenges global automakers face amid shifting trade dynamics. Despite U.S. tariffs eroding short-term profitability, the company’s decisive localization strategy, EV expansion, and operational resilience position it for recovery and sustainable growth.

As Hyundai adapts to new economic realities and strengthens its global production network, it continues to demonstrate the flexibility and strategic foresight required to thrive in a complex global automotive landscape.