Hello. Thank you for joining us today. We would like to begin the conference call for the fiscal year 2025 second quarter earnings results by Kia. As a reminder, today's presentation will reference the earnings materials available in the IR library on the Kia website. Joining us on today's call from Kia are CFO and Senior Vice President Seung-jun Kim , IR Strategic Investment Group Senior Vice President Joo-Hang Chang, and Head of IR Seong-guk Jeong . Today's call will begin with the earnings presentation, followed by a Q&A session for investors and analysts. If you'd like to ask a question, please press the star key followed by the number one on your phone, and we'll take questions in the order received. With that, I would like to invite Head of IR Seong-guk Jeong to present the Q2 results.
Hello, this is Seong-guk Jeong , Head of Investor Relations at Kia.
I will begin with business results for the second quarter of Fiscal Year 2025. I'll commence with the sales summary, followed by the consolidated income statement, revenue and earnings analysis, and finally the consolidated balance sheet. First, we'll begin with the global retail sales performance. In Q2 2025, global industrial demand increased by 3.2% year-on- year due to pull forward demand in the U.S. market ahead of expected tariff implementation and demand side stimulus measures in China under the trade-in policy. Kia's global retail sales witnessed 4.2% growth year -over- year, led by the Carnival Hybrid in the U.S. and the new Syros model in India, enabling us to maintain a 3.7% share of the global market.
By market, despite the discontinuation of the K3 in the second half of last year, domestic sales grew by 3.2% year -over- year, driven by the new model effects of our compact pickup truck Tasman and the EV4, both of which began full-scale sales from the second quarter. In the EV segment, continued strong sales of last year's EV3, combined with the new launch of the EV4, contributed to achieving a 29.3% market share in the domestic EV market in the first half, securing the number one position. In the U.S. market, solid demand growth continued into the second quarter, with April demand rising nearly 10% due to concerns over potential price hike in the second half, driven by tariff adjustments that began in early April.
Supported by the new model effects of the Carnival hybrid and K4 launched in the second half of last year, our sales outpaced overall industry growth, increasing by 5.2% and expanding our market share to 5.2%. In the Western European market, despite the strong sales of the EV3, ranked third among best-selling electric vehicles, sales decreased by 4.1% year-over- year due to the increased deferred demand prior to our key ICE volume model, the Sportage PE launch, and the discontinuation of the previous year's Ceed PHEV. However, we plan to aim to close the temporary gap in our ICE lineup and further strengthen our EV market dominance through concentrated new model launches in the second half, including the Sportage PE, EV4, EV5, K4, and PV5.
In the Indian market, the new Syros model released at the beginning of the year offset declining sales due to aging of existing Seltos and Sonet models, driving a 9.5% year-on- year sales increase and expanding our market share to 6.3%. Major emerging markets achieved sales growth centered on the Middle East and Africa and Central and South America markets, driven by the strategic expansion of export volumes from Chinese plants. Next is our electrified vehicle sales summary. In Q2 2025, electrified vehicle sales increased by 14% year -over- year to 185,000 units, driven by strong demand for hybrids in the United States market and EVs in Western Europe. As a result, the share of electrified vehicles in our global sales expanded by 2 percentage points from 21.4% in Q2 2024 to 23.4% in Q2 2025, and sales mix for hybrid and EVs accounted for 14% and 7.4%, respectively.
By model, the sales growth in hybrid was led by the Carnival, while in the EVs, the growth was driven by the EV3. At the end of last year in the U.S. market, the Carnival hybrid, introduced for the first time, targeted the mid-size MPV HEV segment, previously dominated by Toyota Sienna, and achieved a 23% market share in the segment. In Western Europe, the EV3 recorded sales of 27,000 units, exceeded the Q2 business plan volume by approximately 10%, supported by popularity and positive response on product appeal, thereby driving Kia's EV sales growth.
From the second half of this year through early next year, Kia plans to complete its full lineup of mass market EVs with the EV4, EV5, and EV2, while also adding new models to the HEV lineup, such as the Telluride and Seltos, to swiftly respond to evolving demand and regulatory changes in advanced markets like the United States and Western Europe, thereby further strengthening Kia's position as a leading global brand in electrification. The following is the regional wholesale performance. In Q2 2025, Kia's wholesales increased 2.5% year over year to 815,000 units. Looking at the key regions, North America saw a 4.1% increase year-on- year to 289,000 units, owing to expanded shipments of the Carnival and Sportage Hybrid based on market demand and stronger SUV-focused wholesale volumes, despite the full implementation of tariffs in the U.S. market.
In Europe, despite strong sales of the EV3, sales volume declined by 4.5% year -over- year to 140,000 units due to decreased sales ahead of the Sportage PE launch and a new lineup gap before the introduction of new EV models. In India, sales grew 9.5% year-on- year to 57,000 units, driven by strong sales of the new Syros and the current Carens PE models, while in the Middle East and Africa region, sales increased nearly 10% year -on- year to 62,000 units, owing to expanded sales of the Pegas produced at the China plant and the launch of new models such as Tasman and the K4. Next is the consolidated income statement.
In Q2 2025, revenue reached a quarterly record high of KRW 29.35 trillion, up 6.5% year -on- year, backed by a 1.5% increase in consolidated sales, up 12,000 units, and higher ASP resulting from expanded HEV EV sales in advanced markets and continued price effects based on product value added. Operating profit recorded KRW 2.765 trillion, down 24.1% year -on- year, primarily due to the imposition of tariffs in the U.S., which began affecting our earnings from April onward. However, earnings and profitability were well protected with the operating margin for the second quarter remaining high at 9.4%, underpinned by robust demand in the U.S. and effective cost control, including maintaining incentive levels more than 30% below the industry average.
The following is an analysis of operating profit in detail, breaking down the change in operating profit by factor. First, the U.S. tariffs imposed starting in early April had a negative impact of KRW 786 billion. Despite the efforts to reduce incentives to partially offset these in the U.S. market, overall incentives increased due to increased spending for competition in Europe, resulting in an additional KRW 341 billion decline in earnings. In addition, due to a reduction in both the profitability and sales contribution of EVs, which was higher in the first half of last year following the launch of EV9 in North America, the mix effects continued to weigh negatively in the Q2 following Q1, with a KRW 265 billion decline year-over- year.
However, driven by increased HEV and ICE volume in the U.S., the launch of Sportage PE in Europe and new model effects from the EV4 and EV5, we expect the mix effects to gradually recover in the second half. Consequently, the mix impact is forecast to turn positive in the fourth quarter. Despite the negative impact on earnings from U.S. tariffs, Kia's solid fundamentals continue to improve. Amid market uncertainty, volume growth, primarily in advanced markets and regional mix improvement, contributed KRW 153 billion, continued product value enhancement, drove pricing gains of KRW 88 billion, and favorable currency effects added KRW 501 billion. As a result, Kia's operating profit for the Q2 of 2025 came in at KRW 2.765 trillion, a decrease of KRW 879 billion year over year. Excluding the tariff impact, operating profit would have been exceeded KRW 3.5 trillion Korean won. Let me now walk you through the revenue analysis.
Starting with the chart on the left, consolidated sales increased by 6.5% year-over- year. North America's share rose from 44.3% in Q2 2024 to 45.1% in Q2 2025, up 0.8 percentage points, driven by expanded wholesale, stronger ASPs led by HEV and SUV sales, and favorable effects. Moving on to domestic sales, the launches of the Tasman and EV4, as well as a stronger mix centered on hybrid and SUVs, led to ASPs rising 6.2%, pushing the domestic market share to 18.1%. Europe's share in revenue declined 0.5 percentage points due to lower sales, while India maintained its year-over-year share. Looking at the chart on the right, global ASP for Q2 2025 rose 4.9%, YoY to KRW 38.1 million, reflecting an increased hybrid and EV sales in developed market and FX benefits. Domestic ASP also grew 6.2%, YoY to KRW 35.2 million, maintaining strong upward momentum.
Next is cost of sales and SG&A. The cost of sales ratio rose 4.1 percentage points, YoY to 80% in Q2 2025. Despite higher sales volume, ASP improvement, and favorable effects, the increase was driven by the previously mentioned 786 billion KRW US tariff impact, and the rising incentives. Excluding tariff impacts, cost of sales ratio would have stood at 77.3%. SG&A ratio improved by 0.3 percentage points, YoY to 10.6%. The decrease in royalty cost, supported by a weaker dollar spot rate at quarter end, offset the rise in testing cost and labor cost. Moving on to non-operating income. Equity method gains declined 99 billion KRW, YoY to 115.5 billion KRW, mainly due to weaker performance at certain affiliates. Financial and other non-operating income decreased by 62 billion KRW, YoY to 85 billion KRW, reflecting foreign exchange-related losses and heightened FX volatility.
As a result, the net non-operating profit came in at KRW 235 billion, down KRW 161 billion from the same period last year. Now, lastly, turning to the consolidated balance sheet. As of the end of the first half of 2025, total assets stood at KRW 93.662 trillion, up KRW 906 billion from year-end 2024. The increase was largely due to higher accounts receivable, inventories, and tangible/intangible assets. Total liabilities of the period declined by KRW 164 billion to KRW 36.752 trillion. It was mainly driven by a reduction of approximately KRW 1 trillion in borrowings and lower provisions from a weaker won-to-dollar exchange rate, despite an increase in accounts payable. Total equity rose KRW 1.07 trillion to KRW 56.911 trillion, and the debt-to-equity ratio improved 1.5 percentage points from year-end to 64.6%. This concludes the earnings results for the second quarter. Thank you.
Next, CFO and Senior Vice President Seung-jun Kim will deliver a review on Kia's earnings for the first half of 2025 and business outlook for the second half of the year.
Hello, I am Seung-jun Kim , the CFO and Senior Vice President at Kia. I would first like to talk about the first half of 2025. Based on the first half, we have been able to reach a record high sales, and we have been able to go up 2%. On a six-month basis, we have been able to set a record high. There were a slowdown in EV, but with the strong sales of the EV3, we have been able to break through the EV Chasm. In Rio and K3, there was a discontinuation of those models, but we were able to start new cycles, and with the increase of hybrid, we were able to offset this.
Amid this, through product mix improvement, the ASP has gone up 5%, and 38 million has been reported. Currently, when customers buy cars rather than high trim, the trade-down trend in the ICE demand is being shown, but we were able to push through the ASP increase. Overall, I would like to say that based on the first half, the actual impact of tariffs has been fully impacted from May. Nevertheless, in the first half, we have been able to record an OPM of 10.1%, and in the second quarter, 9.4%. We weren't able to achieve two-digit OPM, but regardless, we have been able to record high level of OPM when we believe it is thanks to our fundamentals. After the third quarter, we have been having two-digit OPM, and then now we are in one-digit OPM.
But still, I think that we have been able to probably have better operating profit, but we have still been able to prove our fundamentals. Not only this, one thing that we thought could have been better is the EV Chasm and also the options or high profitability vehicles. In the high option trims, because the situation is harsh, the option selections have deteriorated. Because of the trade-down market stance, the mix deterioration worsened compared to the year before. We had low incentives, and due to that base effect, this year there was a little bit of an uptick in the incentives, and that's why the profitability deteriorated. However, Kia still has our strong fundamentals, which enabled us to have a high OPM and profitability. To talk about the tariffs, tariffs, as you're well aware, it's not only hit from Kia's side.
This is a difficult situation that is faced by all OEMs. Therefore, whether we're going to sit on our hands on this, we will not do so. Basically, we had our basic fundamentals, and we will continue to enhance our core competitiveness and profit generation capability. We think this is an opportunity for us. Not only tariffs. Right now, this is an external factor of tariffs, but next time, there may be a different factor that may come in. Rather than blaming the external factors, we will continue to increase what Kia is good at and think about it and look at it from a long-term perspective and increase our core competitiveness and to be able to become an industry-leading profitability and also be able to have better profitability. We will make sure to put in more efforts to make this happen. Next is for the H2 outlook.
As you're well aware, in H2, it will be a more difficult situation than the first half. If we just look at the tariffs in May and June, there was impact, but in the second half of the year, we will probably get full impact of the tariffs. Not only this, if we look at the key regions for the United States, in the first half, there will be inflation. Therefore, there was the pull-forward demand because of the front-loaded demand from the first half because of the high base effect. Also, we anticipate price hikes in the second half and phase-out of EV subsidies around September. Major forecasting agencies anticipate a 10% year-on-year decline in demand in the second half in Europe. Compared to the COVID-19 situation, we believe that there will be a decline in demand.
Due to the tariffs, due to the deterioration of exports to the U.S., we believe that there will be intensified competition in the European market. Also, the Chinese competitors have also entered the market. Therefore, we think that it will be difficult in the second half.
So let me brief you on our strategy. First, regarding tariff policy for the vehicles produced in the Georgia plant, they will be distributed in the U.S. first. In the early part of this year, some of the volumes were planned to be exported to other regions, including NEA, but we will change the plan to distribute the models in the U.S. first. The Korean-produced models will be sent to Canada and the U.S. so that we can reduce the impact from tariffs to an extent. Efficient production and flexible production will be pushed forward further, which is Kia's strength. If the sales are stagnant, then the strength or tailored will be purchased more so that we can offset the tariff impacts in the U.S. That's the strategy we are looking to establish. Our internal goal for the second half of this year for the retail is 7% growth.
That's the internal goal. In the first half, our market share was maintained at 5.1%, but in the second half, we are targeting a market share of over 6%. That is the operational strategy. That's the direction that we will take. In the case of the European market, in May and June, there were some challenges in the market according to our judgment. The EV3 sales in Europe are very well received, and EV4 will be launched in the second half as a new model. EV5 and next year, EV2 will be launched in the market. We had a challenge in ICE in the first half for models like Sportage. They are aging models, so the sales were stagnant of the model in the market.
However, in August, the new PE model will be launched in the market, and the share of Sportage in Kia is the most significant than any other models. In terms of profitability and sales volume, it serves a great role in our mix. If Sportage PE sales go up, then I think we can offset the challenges we experienced in the first half. We will also expand the market share in Europe in the second half. I think this will be questioned by many people here. The annual guidance of Kia, I think this is the part where you have the most curiosity about. But as you know, the tariff negotiation has been halted. We need to think whether we need to expect 25% tariffs or whether it will be declined to 15%, as in the case with Japan, or 10% like the U.K. But nothing has been decided yet.
Accordingly, with the tariff impacts, the pricing plan and incentive strategy will be highly impacted. As of now, it's very hard to determine the potential impact of the tariffs, and making an announcement on that might be a misguidance to our investors. For that regard, after the tariff policy is settled, we will make a separate announcement by a venue like this. Thank you for listening. Thank you.
Now we will begin the Q&A session. Please follow the instructions from the operator.
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Now Q&A session will begin. Please press star one. That is star and one. If you have any questions, questions will be taken according to the order you have pressed the number star one. For cancellation, please press star two. That is star and two on your phone.
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The first question will be provided by Paul Hwang from Citi Securities. Please go ahead with your question.
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Hello, I'm Paul Hwang from Citi Securities. I have three questions in total. The first question is a rather simple one. In the materials distributed by Kia, as far as I remember, there were figures of raw material costs stated in the materials. This quarter, the material does not include that information. Please elaborate on the impact of the raw material costs on the operating margin. Second question is about incentives. As you mentioned, the competition will be more intensive in the second half in the European market. Of course, incentives were somewhat growing in the U.S. market, but in other markets, I think incentives can have a negative impact on operating margin. You also mentioned about the potential improvement in the mix in the fourth quarter.
As the new car cycle will commence in the European market soon, I wonder whether incentives will have any impact on the profitability in the second half of this year in that market. My third question is the most important one. Regarding the tariff impact, I think your presentation did not show a huge amount of future plans for the potential tariff impact. As we heard from the competitors' presentation yesterday, they included 40% of the total tariff impact potentially that was included in their plan. However, in the Kia’s presentation, I think there were not much about the potential tariff impact, excluding for distributing the U.S.-produced cars in the market directly. I would like to ask you more about the timeline and the potential result of the future plan that will be shown in the second quarter.
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Let me first answer to your question about the raw material cost. There has been a lot of fluctuations regarding the raw material cost, so that's why we included that information in the earnings bridge so far. However, recently the prices cost, including the commodity cost and the battery cost, has been stabilized, so that's why we included that information in this quarter's bridge. For your information, we are expecting that the stabilized raw material cost will have a KRW 50 billion of positive impact in our revenue.
When we looked at the details of the raw materials in the second half, we are expecting that the price will be still stabilizing. If we think that we need to include that information in our bridge again, then we will do that as well. Next question about the incentive. In the first half, the incentive was truly lower than the last year, so that's why it might look like it's increasing this year again. But in the second half, we are already reducing incentives in the U.S. market, and that is in operation starting from May, actually. However, in the European market, the situations are not very great in countries like Germany and France, so that's why we expect there will be some addition in the incentives.
However, as we launch new models like Sportage PE, EV4, and EV5, there will be some kind of positive impact following the new model launches. That's why we don't see that the incentive situation will not be worsened in the first half. Your last question about our plan to offset the tariff impact. Actually, we started to get impacted from the tariff impact starting in May and June. So far, our company has not been responding to the impact very actively, but that will be reflected in our second half operation. As I mentioned, we will see the impact from the reduced incentives as well. It will be applied to other companies around the world, but there will be duty drawbacks for the parts that will be installed in cars produced in the U.S. That's why we are looking at and expecting 25%-30% offset of tariff impact.
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The following question will be presented by Moon-young Lim from Samsung Securities. Please go ahead with your question.
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Hello, I'm Moon-young from Samsung Securities. I have three questions. The first question is on the impact of H2. You said that Kia will put in diverse efforts in order to mitigate such impact of tariffs. If we include the duty drawbacks that the United States government has announced, then because if we have the simple calculation done of the impact in May and June, I think it will be about KRW 380 billion. How much can that be reduced with the mitigation plans from Kia's side? The second question is, it was mentioned in the presentation that in the second half of the year, the United States market share will be pushed ahead to 6%. But in H2, I don't think that there's any special new cars that will be released from Kia's side.
Therefore, considering the tariff impact and the incentive decline, how will you be able to increase the market share to 6%? The third question is on the share buybacks. In H1, it was KRW 350 billion. When will the share buyback be for the second half of the year?
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On the first question, rather than talking about the specific decline that we will be able to mitigate, I would first like to talk about the big chunks of the items that we will be able to contribute to having impact of the mitigation. First, we can divide it into the pricing and the non-pricing measures. For the non-pricing measures, it could be the adjustment of the production base as well as the sales base. We can also adjust the 25,000 of volume in order to move it to the United States. Also, there's also the impact of the duty drawback, and therefore we think that that will hold 20% of the non-pricing measures. Also, regarding the incentives, there is about $500 that are less that we are operating compared to our business plan, and we have to look at the economic situation.
So we cannot talk about the specifics, but currently we are selling about 865,000 in the United States. Looking at the $100 incentives and the sensitivity of that, it will probably amount to about KRW 120 billion. Therefore, it will be about a KRW 600 billion impact yearly. Having those three together, we believe that it will hold about 30% of the mitigation. For the pricing measures, it will be the same for all OEMs. It's a very sensitive topic, and we will have our common pricing adjustments according to the change of the model year. However, excluding that in place, we don't know when we will make a decision for the pricing measures. Excluding that, including the non-pricing measures of 20% and the indirect measures of incentives, which will account for 10%, in total it will probably be 30% of the mitigation.
Regarding the market share in the United States, we believe that there will be about 10% of industrial demand that will drop, like the other agencies have anticipated. However, we believe that our retail sales will go up about 7%-8%. The basis for this is because of our hybrid models. Compared to last year, last year we weren't able to fully supply the hybrids that we wanted to. The hybrids hold about 70% in H1, and we are going to increase it to 100% in H2. The IRA will go out on September 30th and will end on September 30th, but we think that it will have impact on the EV sales. However, even though there's impact in the EV sales, we think that the regulation cost will also go down along with it. Also, the CAFE has also been less stringent.
Therefore, it will contribute to lesser costs on regulations. With the flexible adjustments in the EV and hybrid mix, we have the advantage of able to produce mixed production. Therefore, in H2, we are proactively going to increase our HEV and ICE production in order to adjust to the market situation. Although the outlook in the market is bleak at the moment, we believe that with our mixed production advantage that we have, we will be able to grow by 7% and be able to achieve growth in a degrowth market.
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To add on, as SVP Joo-hang Chang has mentioned, we have high demand for the hybrids. We have been able to get a lot of requests for the supply of hybrid in diverse markets, but we weren't able to supply to all of the markets at a timely speed. That was the reason why there was impact in the first half. If we look at the market share of Carnival, it is currently at third rankings, but we believe that with the supply ready, we will be able to push it up to the second rankings. I believe that this will help in the second half of the year. For the K4 as well, it has been newly launched in the first half of the year, and the demand is still very solid. We believe that this will continue on into the second half of the year as well.
Based on these factors, we believe that the market share in the United States in the second half will be able to achieve our target. For the pricing, it is different by OEMs, but in Japan, partially there are some OEMs that are adjusting their prices and some that are not adjusting their prices while they have low incentives. It differs according to the company, but for Kia, we believe that we have our basic foundation and fundamentals in order to grab more demand. Based on that, although there will be difficulties that we face in H2 of 2025, we believe that this is a great opportunity for us to level up, and that is our key advantage that Kia holds.
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This concludes the fiscal year 2025 second quarter earnings results by Kia. If you have any further questions, please contact the Kia IR team directly. Thank you for your time and participation.