Hyundai saw its net profit slashed, and it has the US and China to blame

Key Points
  • Hyundai acquired a net profit of 817 billion won in Q2, trailing a consensus forecast of 1.35 trillion won
  • Analysts say political headwinds have hit sales in Hyundai's biggest market, China
  • U.S. incentives fail to boost sales and competition is set to rise
An employee inspects a Hyundai Motor Genesis sedan on the production line at the company's plant in Ulsan, South Korea, on Monday, April 24, 2017.
SeongJoon Cho | Bloomberg | Getty Images

bleak results stretched into a 14th straight quarter as political headwinds continued to drag down sales in China, its biggest market, and higher incentives failed to boost business in the United States.

The South Korean firm — which together with affiliate Kia Motors is the world's No.5 automaker together — has been betting on a gradual earnings recovery, but the plan hit a roadblock with China's backlash over Seoul's decision to deploy an anti-missile system showing no signs of abating.

For the second quarter ended June, Hyundai Motor reported a net profit of 817 billion won ($729.14 million), down 51 percent from a year ago — the 14th such decline in a row. Analysts on average had expected 1.35 trillion won. Its operating profit came in at 1.34 trillion won and sales at 24.31 trillion won.

Its China retail sales slumped 29 percent in the first half of 2017 as the automaker continued to struggle with its heavy reliance on sedans while customers increasingly opt for sport utility vehicles (SUVs) in the world's biggest auto market.

Its weak brand image has also put Hyundai at a disadvantage versus local and global rivals such as Honda Motor, Toyota Motor and General Motors, all of which reported higher China sales for last month. GM, in its earnings call on Tuesday, said it set second-quarter sales record in China, although it also referred to pricing challenges.

'Hyundai has been hit by China-Korea tensions'
'Hyundai has been hit by China-Korea tensions'

Hyundai Motor plans to open a new factory in Chongqing in late August, hoping to offset some of its sales slide by tapping into the southwestern region, even as its other factories in the eastern region are underutilised.

In the United States, Hyundai Motor's sales over January-June fell 7.4 percent, the second biggest drop after affiliate Kia Motors, as its mainstay Sonata sedans lost ground in the market powered by sport utility vehicles (SUVs).

The slump came despite the automaker sharply boosting incentives to buoy sales in the United States.

It is set to face more pressure as competition rises in its No.2 market, where Asian rivals such as Honda and Toyota will be launching their newest-generation mid-sized sedans this month, going up against the facelifted Sonata to be offered by Hyundai Motor even as sedan sales weaken worldwide.

Hyundai Motor shares trimmed earlier gains after the earnings announcement, and were up 1 percent by 0514 GMT, versus the wider market that was down 0.3 percent.