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Tariff impact continues to be offset; US market share in focus

3Q25 review: In-line OP; tariff impact continues to be offset

For 3Q25, Hyundai Motor (HMC) reported revenue of W46.7tr (+8.8% YoY; 2.3% above the consensus of W45.7tr), operating profit of W2.54tr (-29% YoY; 3.5% above the consensus of W2.45tr), and an OP margin of 5.4% (-2.9%p YoY, -2.0%p QoQ). Operating profit saw positive YoY effects from volume (+W132bn), finance (+W141bn), and “other” factors (+W1.2tr), but FX (-W281bn), mix/incentives (-W440bn), and tariffs (-W1.8tr) had negative effects. Within FX effects, the benefit from a higher average USD/KRW rate (estimated at +W100-150bn) was outweighed by the impact of higher warranty provisions stemming from end-of-period won depreciation (estimated at -W300-400bn). As for the impact of mix/incentives, incentives were likely responsible for around -W212.1bn, while the combined impact of ASP, material costs, and product/trim/regional mix was likely around -W230bn.

HMC maintained its 2025 guidance (first announced at the September CEO Investor Day event): revenue growth of 5.0-6.0% YoY and an OP margin of 6.0-7.0%, implying operating profit of W11-13tr. The company plans to share details of its final dividend and buyback/retirement program (targeting a 35% total shareholder return for 2025?27) at the time of its 4Q25 earnings release in Jan. 2026.

Attention to shift from tariffs to fundamentals; US market share in focus

Despite tariff headwinds (operating profit impact of -W828bn in 2Q25 and -W1.8tr in 3Q25), HMC has delivered stronger-than-feared earnings. Notably, “other” factors―which had previously been a drag on earnings―became a positive contributor in 2Q25 and 3Q25, which we attribute to the effects of the company’s proactive contingency plan. Management also noted that it assumes the reduced tariff rate of 15% (vs. the existing 25%) will be applied retroactively from Nov. 1.

We estimate that the lower tariff rate combined with contingency measures will reduce the impact on annual operating profit by W2.3tr (from W5.7tr to W3.4tr). While this adjustment is already reflected in the 2026 consensus, the resolution of tariff uncertainty itself should serve as a positive catalyst, prompting a shift in market focus from tariffs to fundamentals. Since September, Cox Automotive, GM, and Ford have all raised their US demand outlooks for 2025. Moreover, interest rate cuts should lead to the release of pent-up demand in 2026. We therefore believe it is time to focus on a likely earnings up-cycle led by Hyundai Motor Group’s US market share gains. The Palisade HEV began contributing to sales in September, and with HEV demand rising noticeably in October (amid slowing EV demand), HMC is considering local production in the US. Meanwhile, even with the impact of tariffs, we expect HMC to maintain its 2025 DPS at around W12,000 (keeping it above the minimum of W10,000). We also note the share buyback plan to be announced in Jan. 2026. We maintain our target price at W320,000.