Hyundai readies U.S. battery plant as Q1 profit more than doubles

SEOUL -- Hyundai Motor has finalized a $5 billion electric vehicle battery joint venture in the U.S., boosting electrification efforts in its largest market.

Hyundai also reported on Tuesday that its first-quarter net profit had more than doubled.

Hyundai and partner SK On, a battery unit of SK Innovation, will set up a new battery manufacturing plant in the state of Georgia, the companies said, formalizing an earlier provisional agreement.

The move follows new U.S. sourcing requirements for EV battery components and critical minerals in order for car buyers to qualify for up to $7,500 in credits under the Biden administration's Inflation Reduction Act (IRA).

Cars made by Hyundai and sister company Kia are currently not eligible for the tax credits.

The joint venture “further accelerates the group’s electrification efforts and bolsters its position as an EV leader in the U.S. market with a stable battery supply,” Hyundai said. The automaker signed a memorandum of understanding with SK On to secure battery supply for North America last November.

The Hyundai-SK On Georgia plant is expected to start manufacturing battery cells in the second half of 2025 with an annual production capacity of 35 gigawatt hours, sufficient to support the production of 300,000 EVs.

Affiliate Hyundai Mobis will assemble battery packs using cells from the planned plant, then supply them to Hyundai Group’s U.S. manufacturing facilities for the production of models including the Ioniq 5, the Kia EV6 and the Genesis GV60.

Hyundai reported a net profit of 3.3 trillion won ($2.47 billion) for the January-March period versus a profit of 1.6 trillion won a year earlier, thanks to a rise in vehicle output as a global chip shortage eased and demand for its high-margin crossovers remained strong.

Revenue rose 25 percent to 37.8 trillion won while the automaker’s gross margin was 20.4 percent, ahead of the 18.2 percent the market was looking for. Its operating profit margin hit 9.5 percent

“Strong sales mainly stemmed from the improvement of production as chip and component supplies stabilized worldwide,” Hyundai said. It added it sees “persistent external factors, such as expanding inflation and fluctuation of raw material costs and interest rates due to geopolitical issues.”

Hyundai’s global retail sales for the first quarter rose 3.6 percent. Sales in Europe were 1.5 percent higher and jumped 13 percent in North America. In China, they sank 8 percent. Russia, where Hyundai has a plant in St. Petersburg, posted a 72 percent decline.

The global chip shortage that has been hurting automakers since late 2020 is not “completely gone” but Hyundai’s plants have been operating at 100 percent as planned since April, Hyundai Executive Vice President Gang Hyun Seo said during a conference call.

“We do not see the chip shortage is at a level that affects our production,” he said.

Lee Jae-il, an analyst at Eugene Investment & Securities, said: "On top of strong car demand, raw material costs have continued to stabilize and drop since late last year, helping Hyundai achieve better profitability."

Hyundai and Kia cars are competitive in the U.S., based on their prices and a favorable exchange rate, he added.

Seo Gang Hyun, head of Hyundai's planning and finance division, said conventionally powered SUVs and luxury Genesis cars still accounted for a large proportion of the company's U.S. sales.

"So, I would say that the impact of the Inflation Reduction Act would not be as substantial as you are concerned about," he told analysts on an earnings call after being questioned about the issue.

Hyundai and Kia also said on Tuesday they planned to invest a combined 1.05 trillion won to acquire more shares in autonomous mobility firm 42dot to maintain control and increase its operational competitiveness.

To benefit as much as possible under new legislation, Hyundai boosted sales of leased cars to 35 percent of total EV sales in the U.S. as of the end of March, Seo said. In December, the U.S. Treasury Department said it would consider leased cars and trucks to be commercial vehicles, meaning they are not subject to the IRA’s sourcing requirements.

“All of our cars will probably be able to get the benefits from IRA in around 2026,” he said. “Before then, in 2024 and 2025, we can spend more on incentives for EV sales to not lose in the competition” in U.S., he added.

Analysts are forecasting a record profit for Hyundai for 2023 as easing global supply chain pressures work to free up shipments of deliveries that were delayed during the pandemic. Hyundai is expanding its market share particularly in Southeast Asia with its lineup of electric cars and SUV, according to Kota Yuzawa, an analyst at Goldman Sachs.

While Southeast Asia’s car market “has been dominated by Japanese automakers historically, a lack of competitive Japanese EV models until 2025 will pose opportunities for Hyundai,” Yuzawa said in a April 14 note.

Bloomberg contributed to this report