Hyundai Motor Posts a First Net Loss in 8 Years as China Sales Tumble

Hyundai Motor

South Korea’s Hyundai Motor surprised the market on Thursday by posting its first quarterly net loss in eight years since its automobile sales slumped in the key China market.

Hyundai has been grappling with the shortage of attractive models and strong branding in China, it is largest market where the auto industry’s sales contracted for the first time in more than two decades past year due to the Sino-U.S. trade warfare and the phasing out of tax cuts on smaller automobiles.

Hyundai reported a net loss of 129.8 billion won ($114.95 million) for the fourth quarter ended in December compared with the average 784 billion profit estimate of analysts based on I/B/E/S Refinitiv data.

It was the automaker’s first net loss since it altered the accounting system in 2011. And though sales climbed 5% to 25.67 billion gained in the quarter, operating profit dropped 35 percent to 501 billion won.

It was the sixth successive annual net profit drop for Hyundai, which with Kia is the world’s No.5 automaker.

Hyundai blamed weakness in emerging market currencies and increasing investments as well as one-off prices such as corporate taxation for the weak results, but expects profitability to improve this year driven by new models.

It’s not the only automaker afflicted by a slowdown in China, the world’s biggest auto industry. U.S. automaker Ford Motor on Wednesday swung into a net quarterly loss, following submitting plummeting China earnings.

Hyundai’s China sales tumbled 23 percent in the fourth quarter, lagging the wider economy. For the whole year, Hyundai sold 790,000 vehicles at China – lower than its own target of 900,000 and almost flat from its six-year-low of 785,000 in 2017 when Seoul’s diplomatic row with Beijing hurt consumer opinion about Korean goods. Hyundai’s full capacity is 1.65 million vehicles in China.

Its joint venture might have shrunk into a loss in the fourth quarter from a year before, said Esther Yim, an analyst at Samsung Securities.

Hyundai earnings will recover this season after bottoming out. But the question is the strength of the recovery, which is anticipated to become weak,” she said.

“I anticipate earnings to miss market forecasts again this season as falling demand and increasing competition makes it difficult for Hyundai to pass along higher prices of vehicles to customers.”

“China demand is expected to be down 5 percent this year, and that I really don’t find a reason why Hyundai would improve earnings and outperform the market this year,” explained Angela Hong, an analyst at Nomura.

Hyundai’s U.S. sales slipped 1 percent this past year, compared to the market’s 0.2 percent fall, together with the automaker’s redesigned Santa Fe SUV failing to live up to its expectations.

The automaker is also bracing for possible U.S. tariffs on vehicle imports and also a U.S. investigation over how it handled a remember over engine defects.

Hyundai and Kia target for a 3 percent earnings growth this year – another tepid rise after they missed their earnings goal for a fourth consecutive year this past year.

Hyundai Motor shares closed 0.8 percent higher on Thursday after falling as much as 3.5 percent following the earnings announcement.

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