[High Exchange Rate Shock] Hyundai Motor Faces Complex Calculations Ahead of Major US Investment

(Seoul=Yonhap Infomax) Eun Byul Yun – The recent surge in the won-dollar exchange rate is complicating financial calculations for South Korea’s automakers.

Hyundai Motor Group has pledged a massive $26 billion (39 trillion won) investment in the United States over the next four years and is increasing its local production footprint, raising concerns over mounting costs.

At the same time, some industry observers expect that the currency translation effect from overseas earnings could partially offset the impact of the US’s 15% tariff on imported vehicles.

According to industry sources on the 26th, Hyundai Motor Group announced in August that it would invest $26 billion in the US over the next four years. This amount surpasses the $20.5 billion Hyundai has invested in the US over the past 40 years, marking an unprecedented capital commitment in a short period.

With the dollar-won exchange rate soaring, the total investment amount Hyundai must allocate has ballooned by trillions of won in just a few months. Since the final investment announcement in August, the exchange rate has risen by more than 80 won, pushing the won-equivalent of $26 billion from about 35.8 trillion won to nearly 38 trillion won.

However, from a financial and operational perspective, Hyundai Motor stands to benefit from a stronger dollar. The higher exchange rate is expected to have a positive impact on both fourth-quarter and full-year earnings.

For the third quarter, Hyundai Motor estimates that a 5% increase in the exchange rate boosts pre-tax profit by 151.7 billion won. In contrast, Kia Corp. projects that a 10% rise in the exchange rate would reduce net profit by about 114.7 billion won.

Traditionally, exporters benefit from a weaker won as they earn more in local currency terms. However, due to the need to set aside warranty provisions in dollars, automakers like Kia may see the cost burden offsetting some of the currency gains.

Nevertheless, the currency effect on Hyundai Capital and overseas subsidiaries’ dollar-denominated assets is even greater, resulting in an overall positive impact from the strong dollar on group earnings.

With the exchange rate up about 5% since the end of Q3, Hyundai Motor and Kia combined are estimated to have gained roughly 100 billion won in currency effects compared to the previous quarter.

Some analysts believe these currency gains could offset up to half of the 15% US tariff burden.

Yoon Hyuk-jin, an analyst at SK Securities, noted that Hyundai Motor’s management had based its 2024 business plan on an exchange rate of 1,350 won per dollar, but the current rate is around 1,460 won. “Every 10-won increase in the exchange rate lifts operating profit by 260–270 billion won. The new ‘normal’ for the dollar-won rate could offset nearly half of the tariff costs,” he explained.

ebyun@yna.co.kr

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