Hyundai Motor Warns of More Pain From Tariffs After Profit Drops

(Bloomberg) -- Hyundai Motor Co. joined a growing list of carmakers warning of more troubles ahead from a prolonged trade dispute after reporting quarterly earnings that missed analysts’ estimates.

An extended trade conflict would have the potential to weaken demand for cars, Vice President Koo Zayong said on a conference call with investors Thursday. The dispute could also weigh on economic growth, intensifying competition among automakers in China, he said.

Hyundai adds to a slew of disappointing earnings reports from carmakers, with General Motors Co., Ford Motor Co. and Fiat Chrysler Automobiles NV all reducing profit forecasts this week as new and planned tariffs wreak havoc on the car industry. Exacerbating Hyundai’s headwinds is a stronger South Korean won, which is overshadowing a sales recovery in markets such as China by eroding the value of the earnings when repatriated.

“The external and internal business environment in the second half is expected to be tough,” Chief Financial Officer Choi Byung-chul said on the call.

Shares of Hyundai fell 0.4 percent at 3:10 p.m. in Seoul. The stock has lost 16 percent this year.

For now, Hyundai’s businesses in countries such as China and India give it some insulation from the tensions the U.S. has with its trading partners. Still, potential import tariffs by the Trump administration may hurt Hyundai’s plan to accelerate its U.S. push with the new Santa Fe SUV and the Genesis G70 sedan.

The company is trying to minimize risks related to a potential 25 percent tariff by the U.S. on imported cars and parts, Choi said. Its actions may include increasing local production of SUVs, he said.

The carmaker has previously warned that the U.S. tariffs would be “devastating,” saying that the tax would push up its production costs by 10 percent a year at its Alabama plant, which manufactures about half of Hyundai cars sold in the U.S.

Second-quarter operating profit fell to 950.8 billion won ($850 million), the Seoul, South Korea-based company said. That compares with the 963.4 billion-won average of estimates compiled by Bloomberg.

To contact the reporter on this story: Sohee Kim in Seoul at skim847@bloomberg.net

To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net, Ville Heiskanen, Lena Lee

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