---
endpoint: analytics
pattern: Autos
status: done
latency_ms: 200326
conversation_id: 5962481e-e141-4de9-ba05-ad559f0e6000
citations: 7
created: 2026-05-31 19:56:08Z
---

# What’s the bull case bear case for Hyundai Motor?

# Hyundai Motor (005380 KS) — Bull Case / Bear Case

**Context — latest data points used**: CLSA O-PF rating, ₩250,000 TP vs ₩193,800 reference price (Transfer of Coverage, 16-May-2025) [1]; Q1 2026 earnings call (23-Apr-2026) and Q4 2025 / FY2025 results (29-Jan-2026) from public transcripts.

---

## Bull Case

### 1. Valuation prices in "existential" risk that we don't think will materialize
- CLSA's anchoring view is that depressed multiples imply legacy-OEM existential risk, but HMC's fundamentals "fall into the relevant camp" of automakers that will survive the EV/robo-taxi disruption [2]. Post 4Q24 results, HMC was trading at ~5.4x 1-year forward PE, with the FY25 guidance implying just 4–5x — a level CLSA characterizes as good risk-reward and the basis for an O-PF re-rating to ₩250,000 (Jan 2025 valuation note) [2][6].
- The thesis statement: HMC is fundamentally in a much better position than other global OEMs, while consensus expectations are low enough that the share price has limited downside given the dividend + buyback yield of "close to 7–9%" depending on buyback assumptions [3].

### 2. Capital return is large and credible
- The board introduced a minimum annual EPS of ₩10,000 / common share starting 2024 under the "Value-Up" program, and 2025 fully delivered it despite a 25% YoY decline in consolidated net income — payout ratio reached 27.7% [11].
- A 3-month share repurchase program commenced **30 January 2026**, on top of the EPS pledge — these are large, mechanical buyers of the stock through 1H26 [13].
- Q1 2026 quarterly dividend was reaffirmed at **₩2,500 per share** for both common and preferred stock, consistent with the value-up cadence [10].

### 3. Tariff exposure is structurally lower than US/Japanese peers
- Management has stated tariffs are "quite muted relative to some of our competitors that rely on Canada/Mexico" — citing that 53% of Toyota RAV4 / 100% of Tacoma come from Canada/Mexico and 81%/50% of Honda Civic/CRV from Canada/Mexico, vs HMC's North American footprint being more US-domestic [4].
- The effective tariff rate dropped from 25% to **15%** during Q4 2025 (retroactive to 1 Nov), reducing the quarterly tariff drag by ₩360bn QoQ to ₩1.46tn; full-year FY25 tariff impact was ~₩4.1tn but management mitigated ~60% via contingency measures [11].
- Q1 2026 tariff drag was ~₩860bn, "significantly lower compared to the quarterly tariff impact in the second half" — i.e., directionally improving [9].

### 4. Hybrid + US franchise are outperforming a contracting industry
- Despite global auto demand falling **~7.2%** in Q1 2026, HMC grew global market share by **+0.3 pp to 4.9%** and US share by **+0.4 pp to 6.0%** (4th consecutive quarter at 6%) [7].
- Hybrid mix reached **17.8% globally / 24.8% in the US** — both record highs — and grew **+26.9% YoY** as US EV momentum stalled [8].
- US wholesale crossed **1 million units annually for the first time in 2025**, validating the SUV+hybrid+Genesis mix-up strategy [11].

### 5. "Clean" underlying margin is well above reported headline
- Reported Q1 2026 OPM of 5.5% was depressed by ~₩600bn of one-offs (FX revaluation on warranty provisions, Middle East war disruption, PALISADE sales suspension). Stripping these out yields **~₩3tn operating profit and ~6.6% OPM** [10].
- Management maintained the **6.3%–7.3% FY26 OPM guidance** despite acknowledging "unprecedented" uncertainty — implying H2 model launches (IONIQ 3, etc.) plus zero-based-budgeting contingency plans will lift margins from here [10].

### 6. Hydrogen optionality
- CLSA's June 2025 hydrogen webinar highlighted HMC (alongside BMW) as one of the few OEMs making "encouraging progress in FCEVs" — a free option on the hydrogen mobility theme that is not in numbers [8] *(thematic positioning; valuation impact not modeled)*.

---

## Bear Case

### 1. Earnings have been broken by tariffs even at the 15% rate
- Q4 2025 OP fell **−39.9% YoY to ₩1.7tn**; net income halved (−52.1%) [11].
- Q1 2026 OP fell **−30.8% YoY to ₩2.5tn** despite record-high Q1 revenue, and consolidated net income fell −23.6% YoY [12].
- Auto-segment operating profit specifically was **down 36% YoY** in Q1 2026 — the core business is bleeding margin even at the (lower) 15% tariff rate [12].

### 2. FY26 guidance shows growth is anemic
- 2026 wholesale target of **4.158m units** = just +0.5% YoY (+20k units), with consolidated revenue guidance of **+1–2% YoY** — barely above zero in nominal won terms [12].
- HMC's own FY25 OPM guidance of 7–8% (set Jan 2025) excluded tariff impact and was already 17% below consensus at the low end [5]. Actual FY25 OPM landed at 6.2% [11] — well below guidance, and FY26 guidance of 6.3–7.3% leans on the same contingency measures already partially exhausted.

### 3. The bull case is essentially a yield trade, not a growth story
- CLSA's valuation methodology uses a **6.0x forward PE multiple** — "in line with the higher end of the average range for global legacy OEMs" — explicitly NOT a re-rating call to growth-OEM multiples [6]. The investment thesis itself acknowledges shares will "stay range-bound into 1H25" with downside protection coming from the **6.8% dividend yield**, not earnings growth [3].
- A PE trading **below** dividend yield is the market signaling concern about yield sustainability — HMC's 6.8% yield and Kia's 6.7% reflect this "existential risk" pricing, not undervaluation alone [2].

### 4. Specific quantifiable downside risks per the analyst's own framework
CLSA's investment-risk section flagged three drivers that would push numbers below model [5]:
- **US tariff escalation** to ≥20% (vs. assumed lower rates) → bigger tariff burden.
- **US auto demand decline >1–2% YoY** → further volume cut to numbers (Q1 2026 global demand already fell ~7.2%, exceeding this threshold [9]).
- **Won strength to ₩1,250–1,300:US$1** → direct OP headwind. The bull case is partly an FX trade — the Q1 2026 average rate was ₩1,465 [9], so any KRW appreciation back toward bull-case ranges erodes earnings.

### 5. Competitive / structural overhang
- Working-capital and incentive intensity is rising — Q1 2026 saw incentive costs up ~₩300bn YoY in the US alone, reflecting intensified competition [9].
- COGS ratio rose **+2.7 pp YoY to 82.5%** in Q1 2026, signaling material-cost pressure has not abated [12].
- EV sales **dropped −8.3% YoY** globally in Q1 2026 (hybrid is offsetting), and the potential repeal of US IRA legislation is an explicit risk management itself called out [9]. HMC's Georgia EV plant capex is sunk.

### 6. One-off "ex-items" framing is becoming a recurring habit
- The pattern of reporting "underlying ₩3tn OPM" by stripping out FX, geopolitics, and product recalls has appeared for multiple consecutive quarters [10]. When one-offs become regular, the credibility of the underlying margin guide diminishes.

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## Net Take (per CLSA's framework)

CLSA's stance is a "range-trade" rather than a conviction-long: **O-PF (Outperform-Performance) with ₩250,000 TP** (+29% upside from the May 2025 reference price of ₩193,800) [1], built on a 6.0x forward PE [6] and underpinned by a **7–9% combined dividend + buyback yield** [3] that should act as a floor. The bull case is that the market is pricing existential risk that is not warranted given HMC's better-than-peer EV/hybrid mix and structurally lower tariff exposure. The bear case is that the same dynamics — tariffs, demand contraction, won risk, and a ~5x PE multiple cap — define a ceiling on the upside until either tariffs structurally roll off or earnings growth resumes. The 2025 OP collapse (~−40% in Q4, ~−30% in Q1 2026 follow-through) confirms the bear-case pressure is real, while the maintained 6.3–7.3% FY26 OPM guide [10] and capital return commitments [11][13] support the bull-case floor.

---

**Sources**
- [1] Korea autos (Transfer of coverage) — CLSA (16 May 2025) — 607959723LinqAlpha.PDF
- [2] Hyundai Motor – O-PF (Mean reversion to the upside) — CLSA (23 Jan 2025) — 607948893LinqAlpha.PDF
- [3] Hyundai Motor – O-PF (Mean reversion to the upside) — CLSA (23 Jan 2025) — Investment thesis section
- [4] Hyundai Motor – O-PF (Mean reversion to the upside) — CLSA (23 Jan 2025) — Tariff Q&A section
- [5] Hyundai Motor – O-PF (Mean reversion to the upside) — CLSA (23 Jan 2025) — Investment risks section
- [6] Hyundai Motor – O-PF (Mean reversion to the upside) — CLSA (23 Jan 2025) — Valuation details section
- [7] Hyundai Motor Q1 2026 Earnings Call (23 Apr 2026) — Q1 highlights
- [8] Hyundai Motor Q1 2026 Earnings Call (23 Apr 2026) — Sales mix / hybrid commentary
- [9] Hyundai Motor Q1 2026 Earnings Call (23 Apr 2026) — Tariff & demand impact
- [10] Hyundai Motor Q1 2026 Earnings Call (23 Apr 2026) — Margin bridge / FY26 guidance reaffirmation
- [11] Hyundai Motor Q4 2025 Earnings Call (29 Jan 2026) — FY25 results & shareholder return
- [12] Hyundai Motor Q4 2025 Earnings Call (29 Jan 2026) — FY26 guidance
- [13] Hyundai Motor Q4 2025 Earnings Call (29 Jan 2026) — Share repurchase program

## Citations

- [7] **Hyundai Motor Co., Ltd., Q1 2026 Earnings Call, 23-April-2026 1** · external
- [8] **Hyundai Motor Co., Ltd., Q1 2026 Earnings Call, 23-April-2026 1** · external
- [9] **Hyundai Motor Co., Ltd., Q1 2026 Earnings Call, 23-April-2026 1** · external
- [10] **Hyundai Motor Co., Ltd., Q1 2026 Earnings Call, 23-April-2026 1** · external
- [11] **Hyundai Motor Co., Ltd., Q4 2025 Earnings Call, 29-January-2026 12** · external
- [12] **Hyundai Motor Co., Ltd., Q4 2025 Earnings Call, 29-January-2026 12** · external
- [13] **Hyundai Motor Co., Ltd., Q4 2025 Earnings Call, 29-January-2026 12** · external

