(Editor's Note: (S&P Global Ratings believes there is a high degree of unpredictability around policy implementation by the U.S. administration and possible responses--specifically with regard to tariffs--and the potential effect on economies, supply chains, and credit conditions around the world. As a result, our baseline forecasts carry a significant amount of uncertainty. As situations evolve, we will gauge the macro and credit materiality of potential and actual policy shifts and reassess our guidance accordingly (see our research here: spglobal.com/ratings)))
This report does not constitute a rating action.
Key Takeaways
- The U.S.'s new 25% tariff on imported cars and auto parts will hurt the profitability of Korea's Hyundai Motor Co. Ltd. (HMC) and Kia Corp. Slightly more than 60% of their U.S. sales volume come via imports from Korea and Mexico.
- We expect HMC-Kia's strong overall profitability and solid sales performance in the U.S. will help the group manage the risks. The group has some buffer, although that will inevitably narrow.
- If the tariff stays for longer, the company's margins may be under more sustained pressure until its new U.S. plant ramps up fully. Its plan to increase local production in the U.S. via a recently opened plant in Georgia, should help mitigate the tariff risks more structurally.
Korea's leading auto group will be hit hard by imposition of 25% tariffs on autos imported into the U.S. HMC-Kia has some credit buffer thanks to its strong profitability and robust financial metrics. However, if the high auto tariff stays for the long-term, downside rating pressure will mount.
Effective April 3, 2025, the U.S. government began imposing industry tariffs on all imported auto vehicles. Imported auto parts will be subject to the same 25% tariff from May 3. Vehicles and components that comply with United States-Mexico-Canada Agreement (USMCA) are eligible to partial exemption for the time being.
Korean automakers are vulnerable to this shift, given their inroads into the U.S. car market. Autos is the biggest Korean export to the U.S.; accounting for about US$35 billion in 2024 (see chart 1). A high-tariff environment may accelerate the company's plan to shift more production to the U.S. The severity of profitability decline will depend on U.S. policy, competitors' strategy and consumer demand.
Chart 1
Direct And Indirect Blows
The auto tariffs will hurt HMC-Kia's profits and squeeze the rating headroom. This is because the U.S. has become the largest market for the Korean automaker HMC-Kia, accounting for about 26% of global wholesale volume in 2024. The U.S. is also one of the higher-margin markets for HMC-Kia, contributing to the group's recent margin expansion.
The direct impact will come from an increase in tariff-related costs. HMC-Kia imported about 56% of its U.S. sales volume from Korea and about 7% from Mexico; the remaining 37% was manufactured in the U.S in 2024 (see chart 2). We estimate this could reduce EBITDA by as much as Korean won (KRW) 5.9 trillion, or about 20% of our current 2025 base-case forecast, assuming no cost pass-through to consumers for the nine months between April and December 2025.
The increased costs could squeeze its EBITDA margin by about 230 basis points (bps) from our current base case of 11.5% in 2025. This estimate represents the theoretical higher bounds of the effect on EBITDA from the cost side, based on the current export volume exposure analysis; it does not take into account the companies' strategic actions to mitigate the impact of higher tariffs by automakers.
Chart 2
There are important second-order impacts, too.
- Price hikes to pass on the higher cost burden will likely drive down broader consumer demand for auto vehicles in the U.S.
- Planned tariffs on auto parts and ongoing tariffs on steel and aluminum will hurt margins of vehicles manufactured in the U.S. The magnitude of the fallout is hard to estimate at the current juncture, given auto parts typically cross the border multiple times during production. Moreover, a partial exemption is applied to USMCA-compliant parts for their U.S. content.
These second order impacts could further compound the negative hit to the companies' earnings, on top of the initial direct effect. Addressing these risks may also take longer time, particularly given the challenges of redeploying the supply chain.
The high tariff environment will likely drive up the companies' investments into the U.S. We expect Hyundai Motor Group companies, including its auto and steel firms, will increase investments into the U.S as per recent announcements by HMC (see table 1). Much of these investments were already in the group's mid-term plan, except the new steel plant construction. While detailed breakdowns are not confirmed yet, we estimate that the direct burden to HMC-Kia for the new steel plant will be manageable, as that will be shared across individual entities and take place over three years.
Table 1
| Hyundai Motor Group committed to invest US$21 billion over 2025-2028 into the U.S. | ||
|---|---|---|
| Business area | Amount | Key objectives |
| - Automotive | US$8.6 billion | Investments to expand local production in the U.S. |
| - Parts, logistics, and steel | US$6.1 billion | Primarily for a new steel plant in Louisiana with 2.7million ton capacity (US$5.8 billion) |
| - Future industry and energy | US$6.3 billion | Investments into autonomous driving, robotics, and artificial intelligence |
The Group Has A Few Mitigants
The automakers have various ways to mitigate the negative impact. HMC-Kia will likely utilize its onshore inventory in the U.S., which stood at about three months in March 2025. This should allow the companies a bit of breathing space to assess the market reaction and competitors' pricing actions and calibrate their responses accordingly.
The group should be able to pass some of the cost increase to consumers. We do not expect HMC-Kia to be among the first to raise prices in the U.S., and it will likely follow pricing actions of competitors over the next few months. On April 4, HMC announced it will not raise manufacturer's suggested retail price (MSRP) in the U.S. until June 2, 2025.
HMC-Kia's healthy EBITDA margin and mid-term ramp-up of its new U.S. plant should help it navigate this tougher market environment, in our view. We estimated its EBITDA margin at 11%-12% for 2025-2026, prior to incorporating the tariff impact. We expect the company's relative performance in the U.S. could be resilient, given its competitive product offering in hybrids and battery electric vehicles. A weaker Korean won also offers some cushion to profitability. These factors could help them maintain relatively healthy EBITDA margins in the short term.
Chart 3
HMC-Kia's new production plant in the U.S, which opened officially in March 2025, will be able to help reduce the negative impact by gradually increasing local production in the U.S. over the next few years.. The Hyundai Motor Group Metaplant America (HMGMA) in Georgia is scheduled to add annual production capacity of 500,000 units, which would increase the local production in the U.S. closer to about 1.2 million units from about 700,000 units now. Once fully ramped up, HMC-Kia could locally produce about two-thirds of its U.S. sales volume, which was about 1.8 million units in 2024.
If high tariff scheme stays in place for extended time, there may be additional downside risks until the new U.S. plant ramps up fully, however. Relocating to the U.S. could also narrow cost advantages and affect its overall margin profile, although the new U.S. capacity is more automated and should offset some of the higher labor and other costs.
Chart 4
Buffers Will Narrow, Nonetheless
HMC-Kia's credit profile is under pressure. When compared with some global auto OEMs, the group is among the most exposed to the U.S. market. In 2024, HMC-Kia's import volume into the U.S. accounted for about 15%-16% of total global sales. That is lower than that of General Motor's at about 20%, and similar to that of Honda (about 15%). It was, however, higher than Toyota, Stellantis, and Ford, which are all at about 10%.
HMC-Kia still has rating headroom. We believe its strong U.S. business in recent years will cushion it over the next few months and help to manage downside risks further out. We cannot rule out a case where its profitability weakens materially, pushing metrics closer or below our downside triggers of 10% EBITDA margin or 3% free operating cash flow to sales in 2025. The group's ability to hold up also depends on whether the tariffs are here to stay, and how quickly the group migrates its productions to the U.S.
Related Research
- Credit FAQ: Japan's Auto Sector Faces Tariff Tribulations, March 20, 2025
- Auto Industry Buckles Up For Trump's Proposed Tariffs On Car Imports, Nov. 29, 2024
- Hyundai Motor Co. And Kia Corp. Ratings Upgraded To 'A-' On Improved Market Position And Profitability; Outlook Stable, Aug. 21, 2024
| Primary Contact: | Jeremy Kim, Hong Kong 852-2532-8096; jeremy.kim@spglobal.com |
| Secondary Contact: | JunHong Park, Hong Kong 852-2533-3538; junhong.park@spglobal.com |
No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.spglobal.com/ratings (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.spglobal.com/usratingsfees.