While the profit headwind related to tariffs could become a rating event over time, we expect the rating agencies to maintain their patient stance on Hyundai based on its solid market position and healthy pre-tariff profit margins, giving the company time to implement and execute tariff mitigation strategies before contemplating negative rating actions. We note that Hyundai’s biggest mitigation strategy involving the ramp of its US-based Metaplant is already underway and should reduce its reliance on vehicle imports for the US market from 60% to 30% over time.

On a combined basis, HMG’s current FY25 guidance targets FY25 wholesale unit growth of 2% to 7.4 mn units, revenue growth of 5% to 6%, and a consolidated operating profit margin of 8.8% at the midpoint of the range for YoY margin contraction of 40 bp. Kia management expects 2H25 vehicle demand in the US to decline 10% YoY, which will likely lead to a reduction in HMG’s FY25 wholesale unit target. Hyundai management stated it expects a bigger tariff impact in 3Q25 and 4Q25 than 2Q25, which we believe is likely due to a combination of vehicle tariffs being in effect for the entire quarter instead of just two months in 2Q25, along with lower volumes.

HMG targets continued growth of NEVs in 2H25, including a target of 100% growth in HEV sales. Given the end of the US $7,500 NEV consumer tax incentive at the end of 3Q25 and expected reduced emissions standards in the US, the company plans to leverage its flexible production system for ICE and NEVs to adapt to potential demand changes. Management previously noted its Metaplant in Georgia, which was originally designed to manufacture EVs, was being retooled to also produce HEVs and could potentially produce ICE vehicles in the future.