The Auto Tariff War: Not an End, But a New Beginning?
The Auto Tariff War: Not an End, But a New Beginning?
Recently, the tariff negotiations with the U.S., which had the South Korean auto industry on edge, have concluded. With the hot-button tariff rate lowered from 25% to 15%, the biggest cloud of uncertainty has lifted. However, the market's reaction has been surprisingly calm. Instead of celebratory fireworks, the mood is one of cautious assessment of the road ahead. Why is that? And what opportunities should we seize amidst this wave of change?
A Sigh of Relief, But the Calculation Isn't Over
The news of the Korea-U.S. tariff agreement is undoubtedly good news. A sense of relief that the worst-case scenario has been avoided swept through the market. But investors' expressions are mixed. Here are a few reasons why:
1. Expectations Already Priced In: When Japan previously concluded its negotiations with the U.S. at a 12.5% tariff rate, our market had already priced in high expectations. When the result for Korea came out at 15%, some of the 'pre-reflected' anticipation led to profit-taking.
2. The Subtle 2.5%p Difference: The 2.5 percentage point higher tariff rate compared to the 12.5% agreed upon by Japan and the European Union (EU) is a point of disappointment. This means our companies still have to operate at a slight disadvantage compared to their competitors.
3. Profitability Burden Remains: A 15% tariff is certainly a burden on companies. For instance, based on 2025 estimates, Hyundai Motor is expected to see an operating profit decrease of about 2.5 trillion won, and Kia about 1.5 trillion won. These are by no means small numbers.
For these reasons, the tariff agreement did not immediately lead to a surge in stock prices. Instead, the market seems to be focusing on adapting to the new reality of a '15% tariff era'—the 'New Normal'—and planning future strategies.
The New Tariff Normal: Where is the Auto Industry Headed?
So, where will our auto and parts industry go from here? Experts point to several key factors:
Local Production in the U.S. is No Longer a Choice, But a Necessity: The most certain way to avoid tariffs is to produce directly in the United States. This is why the importance of Hyundai Motor Group's electric vehicle plant (Metaplant) under construction in Georgia is growing. It is expected that more parts suppliers will increase their local investments in the U.S., boosting the proportion of 'Made in USA' products.
Companies' 'Big Pictures' Will Be Revealed: With the major variable of tariffs now settled, there is a high probability that companies will announce large-scale investments, M&A, and other important business strategies that had been postponed. The potential for cooperation between Hyundai and GM is one of the big pictures the market is watching closely.
Shareholder Return Policies: Can We Expect More?: As uncertainty is resolved and earnings forecasts become clearer, companies will have more capacity to implement shareholder return policies such as dividends and share buybacks. Attention is focused on whether specific plans will be announced at the upcoming 'CEO Investor Days' for Hyundai Mobis (8/27) and Hyundai Motor (9/18).
In conclusion, the tariff agreement is not the end, but a signal for the start of a new game. Rather than reacting to short-term stock price fluctuations, it is a time for the wisdom to discern which companies will adapt more intelligently and create new opportunities in the changing environment.
Investment Ideas & Strategies
Based on the report, the following investment areas and strategies can be considered.
Investment Area: Stocks related to finished vehicles and auto parts.
Practical Strategies:
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Selective Investment in Beneficiaries of U.S. Localization: Companies that are expanding production plants in the U.S. or supplying parts to local automakers are relatively free from tariff barriers. Attention can be paid not only to automakers like Hyundai and Kia but also to parts suppliers like HL Mando, Hyundai Mobis, and SL, which are expected to secure stable orders by entering the U.S. market alongside them.
Potential Risk: There may be risks related to the production efficiency of U.S. local factories or changes in local policies.
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Strategy for Co-growth of Automakers and Parts Suppliers: The expansion of Hyundai Motor Group's market share in the U.S. is likely to lead to the simultaneous growth of parts suppliers. In particular, the performance of companies that supply key components for Hyundai and Kia's main models is expected to improve.
Potential Risk: Parts suppliers that are highly dependent on a specific automaker may experience increased stock price volatility depending on that automaker's sales performance.
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Event-Driven Short-Term Trading Strategy: This is a strategy of approaching from a short-term perspective in line with specific event announcements, such as the CEO Investor Days of Hyundai/Hyundai Mobis or cooperation between Hyundai and GM. Companies like SNT Motiv or SL, whose cooperative relationship with GM may be highlighted, are also of interest.
Potential Risk: If expectations for an event are already priced in or the announced content falls short of market expectations, the stock price may fall.
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Long-Term Investment in High-Dividend-Yield Stocks: Stocks with high expected dividend yields, like Kia, are likely to attract market interest as the year-end dividend season approaches. This is a suitable strategy for investors who prefer stable cash flow.
Potential Risk: If the company's performance deteriorates, dividends may be reduced or not paid, and there is also a risk of stock price decline.
Disclaimer
This article is for general informational purposes only and is not a recommendation to buy or sell any particular stock. The final decision and responsibility for all investments lie with the investor, and losses may occur from such investments. It is recommended to review sufficient information and seek professional advice before making investment decisions.
