By Heekyong Yang and Joyce Lee
SEOUL (Reuters) - South Korea's Hyundai Motor Co said on Tuesday it had finalised a $5 billion electric vehicle (EV) battery joint venture in the U.S., boosting electrification efforts in its largest market.
Hyundai also reported its first-quarter net profit had more than doubled, exceeding expectations. Its shares rose as much as 5% to a seven-month high after the announcements, and as the automaker also initiated steps to improve shareholder returns.
Hyundai and partner SK On, a battery unit of SK Innovation Co Ltd, will set up a new battery manufacturing plant in the state of Georgia, the companies said, formalising an earlier provisional agreement.
The move follows new U.S. sourcing requirements for EV battery components and critical minerals in order for car buyers to qualify for up to $7,500 in credits under the Biden administration's Inflation Reduction Act (IRA). Cars made by Hyundai and sister company Kia Corp are currently not eligible for the tax credits.
The announcement was made as South Korean President Yoon Suk Yeol is in Washington to meet President Joe Biden on the first state visit to the U.S. by a South Korean leader in 12 years. Accompanying Yoon on the trip are top executives of some of South Korea's biggest companies, including Hyundai Motor Group Executive Chair Euisun Chung.
Rivals General Motors Co (NYSE:GM) and Samsung (KS:005930) SDI said they would invest over $3 billion to build a joint venture EV battery manufacturing plant in the United States.
The Hyundai-SK On Georgia plant is expected to start manufacturing battery cells in the second half of 2025 with an annual production capacity of 35 GWh, sufficient to support the production of 300,000 EVs.
Hyundai, which makes the Tucson sport-utility vehicles (SUVs) and the Elantra sedans, reported a net profit of 3.3 trillion won ($2.47 billion) for the January-March period versus a profit of 1.6 trillion won a year earlier, thanks to a rise in vehicle output as a global chip shortage eased and demand for its high-margin SUVs remained strong.
That compared with a Refinitiv SmartEstimate for first-quarter profit of 2.3 trillion won from 16 analysts.
"On top of strong car demand, raw material costs have continued to stabilise and drop since late last year, helping Hyundai achieve better profitability," said Lee Jae-il, an analyst at Eugene Investment & Securities.
Hyundai and Kia cars are competitive in the U.S., based on their prices and a favourable exchange rate, he added.
Seo Gang Hyun, head of Hyundai's planning and finance division, said conventionally powered SUVs and luxury Genesis cars still accounted for a large proportion of the company's U.S. sales.
"So I would say that the impact of the Inflation Reduction Act would not be as substantial as you are concerned about," he told analysts on an earnings call after being questioned about the issue.
Hyundai and Kia also said on Tuesday they planned to invest a combined 1.05 trillion won to acquire more shares in autonomous mobility firm 42dot Inc to maintain control and increase its operational competitiveness.
($1 = 1,336.2400 won)