Hyundai in a catch-22 as it absorbs U.S. tariffs while Toyota, Volkswagen benefit from deals

[BEHIND THE NUMBERS]

Hyundai Motor is bearing mounting costs on an unprecedented scale due to the hefty 25 percent tariff imposed by the Donald Trump administration — in sharp contrast to competitors like Toyota and Volkswagen, whose home countries have already reached tariff agreements with the United States.

Hyundai and sister brand Kia have paid almost 5 million won ($3,600) as tariff per vehicle exported in the second quarter, raising their quarterly losses to 1.6 trillion won. Meanwhile, Japan and the European Union reached a deal with the White House to reduce the tariff rate on their vehicles to 15 percent, with some companies even slated to receive reimbursements for previously overpaid duties.

Hyundai, facing a jump from zero duties to 25 percent, finds itself unable to raise prices to offset costs; it shoulders the full weight of this financial strain as it fights to defend its foothold in the U.S. market. The progress in follow-up talks between Seoul and Washington has been delayed amid Trump’s demand for $350 billion upfront payment.

5 million won per car: The cost of every export

Hyundai and Kia faced a combined loss of roughly 1.6 trillion won ($1.1 billion) in the second quarter due to the impact of tariffs, according to their earnings report, translating to about 4.9 million won in tariffs per vehicle shipped to the U.S. market.

Between April and June, Hyundai sold a total of 262,305 vehicles in the U.S. market, and of them, 109,112 were produced in its Alabama and Georgia plants for local sale. The remaining 153,193 units were manufactured in Korea and exported, meaning Hyundai absorbed roughly 828.2 billion won in tariff-related losses for the second quarter, equating to about 5.4 million won per exported vehicle.

Kia sold 265,684 vehicles during the same period, with 174,634 vehicles exported from Korea, resulting in an estimated tariff cost of some 4.5 million won per vehicle.

These losses pale compared to Toyota Group’s 450 billion yen ($3 billion) and Volkswagen Group’s 1.3 billion euros ($1.5 billion) but Toyota sold significantly more vehicles in the U.S. market — roughly 794,000 units — and avoids tariffs on about 60 percent of its sales through local production.

Also, since July 1, Toyota has raised its U.S. car prices by an average of $270, with its Lexus brand increasing prices by around $208, helping to offset the losses.

Hyundai Motor Group’s local production rate in the United States, however, stands at just 37.9 percent as of the second quarter, while even Honda’s reaches as high as 72 percent.

European brands, including Volkswagen, will receive partial refunds under the Trump administration’s agreement that the 15 percent tariff would be applied retroactively from August 1, and firms that paid higher tariffs after that date will be eligible to reclaim the difference.

For Hyundai Motor Group, the third-largest automaker in the world, the U.S. market is crucial in its quest to surpass Volkswagen and challenge Toyota’s top spot. In the first half, Hyundai’s operating profit hit 13 trillion won — equivalent to $9.28 billion — surpassing Volkswagen’s 6.71 billion euros, or around $7.88 billion.

“If 25 percent tariffs persist, Hyundai and Kia are estimated to face tariff burdens of some 400 billion won and 300 billion won, respectively, every month,” said analyst Lee Hyun-wook of IBK Securities.

“In 2024, Japan and Korea ranked second and third in U.S. automobile imports, with export values close to $39.9 billion and $37.4 billion,” Lee said. “However, the tariff disparity has put Korean automakers at a relative disadvantage in price competitiveness despite operating in the same market environment.”

‘No price hike’: Hyundai’s bleak road ahead

The outlook is even more challenging as Hyundai refuses to raise prices in a bid to protect its market share, instead absorbing the full loss — while the timeline for a Korea-U.S. tariff resolution remains uncertain.

Hyundai CEO Jose Munoz reaffirmed that he has no plans to hike prices at the CEO Investor Day in New York on Sept. 19, adding, “If we increase prices now, customers simply won’t buy Hyundai vehicles.”

The sticker price of Tucson SUV, Hyundai’s best-selling model in the U.S. market, starts at $28,705. When applying a 25 percent tariff based on a simple calculation, the tariff would be roughly $7,200, though the actual import value subject to tariffs differs from the retail price.

Hyundai sold some 113,310 Tucsons in the first half of the year, according to market tracker MarkLines, meaning that the tariffs amount to about $820 million on this model alone.

However, the Toyota RAV4, a direct competitor to the Tucson, starts at $28,850 — slightly cheaper than the Tucson — but is subject to nearly half of the tariff on Tuscons at $4,330 per vehicle. Despite selling over 240,000 units in the second quarter, more than twice Tucson’s sales, tariffs on RAV4 totaled $1 billion.

Volkswagen’s Tiguan, priced at $29,495, also benefits from significantly lower tariffs of $4,424 per vehicle compared to the Tucson.

Genesis’s best-selling model, the GV70, struggles to compete with luxury rivals like Lexus and European marques. Although priced at $47,650 — cheaper than the Lexus RX’s $50,475 and the BMW X3’s $51,125 — the GV70 faces an estimated tariff of $11,910 per vehicle, significantly higher than the RX’s $7,570 and the X3’s $7,670.

“Hyundai absorbed the tariff costs without passing them onto consumers, resulting in a loss of 1.6 trillion won in the second quarter alone, significantly eroding profitability,” said Kim Kyoung-you, a researcher at the Korea Institute for Industrial Economics and Trade.

“Once inventories are depleted, pressure to raise prices will intensify, likely leading to a decline in overall U.S. vehicle sales.”

Hyundai is expected to report 2.71 trillion won in operating profit in the third quarter, down 24.3 percent on year, marking the lowest quarterly profit since the third quarter of 2022, according to estimates by market tracker FnGuide.

Kia’s operating profit is predicted to drop 15.2 percent to 2.44 trillion won.

BY SARAH CHEA [chea.sarah@joongang.co.kr]