Hyundai, Kia Shift U.S. Tariff Burden to Parts Makers
As Hyundai Motor and Kia’s cash reserves shrink rapidly in the aftermath of the U.S. tariff bomb, analysis has emerged that the tariff burden previously absorbed by the automakers could be transferred to domestic auto parts suppliers as pressure to lower supply unit prices.Hong Se-jin, a principal r
Hyundai Motor and Kia are grappling with the financial impact of U.S. tariffs, which have forced the automotive giants to shift the burden to their domestic auto parts suppliers. Hong Se-jin, a principal researcher at NICE Investors Service, presented findings at a September seminar suggesting that a portion of the tariff costs could be incorporated into the supply unit prices for future parts purchases.
In 2023, the tariff costs recognized by Hyundai Motor and Kia amounted to roughly 10 trillion won, driving their combined operating profit down from 24 trillion won in 2024 to 16 trillion won last year. This decline, coupled with large-scale expenditures on electrification facilities and dividend payments, has resulted in a temporary funding balance below pre-2024 levels.
Under local import procedures, the entity directly paying the tariffs is the U.S. corporate entity of the auto parts supplier. However, the impact on auto parts suppliers has been relatively muted so far, thanks to the U.S. tariff refund system and the retroactive support provided by the automakers. Hyundai Motor Group, for instance, retroactively supported first-tier suppliers by incorporating the U.S. tariffs they bore into the purchase price in November 2023.
The domestic auto parts industry's sales structure poses a significant challenge. Hyundai Motor and Kia account for 90.3% of supply value from 1,430 first-tier suppliers, placing immense pressure on smaller suppliers. This concentration raises concerns about the industry's resilience, reminiscent of the Terminal High Altitude Area Defense crisis in 2017, where small and medium-sized suppliers faced severe consequences due to automakers' sales declines in China.
While short-term resilience is expected for the four major companies, Researcher Hong warned that prolonged strengthened cost management by automakers could lead to a decline in the creditworthiness of the entire industry.
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