Korean automaker Hyundai and its smaller affiliate Kia may face a steep 19 percent decline in operating profitability if the US enacts a proposed 20 percent tariff on vehicles imported from South Korea, according to a report by S&P Global Ratings published last Friday.

The potential tariffs, part of US President-elect Donald Trump’s suggested “universal tariff” on imports, would significantly impact the automaker’s earnings before interest, taxes, depreciation and amortization.

Why Hyundai-Kia could be at risk

Hyundai-Kia’s current exposure to US trade policies is relatively small when it comes to its production in Mexico and Canada. The group primarily produces the K4 sedan and Tucson SUV in Mexico, with only about 5 percent of its global sales tied to exports from there to the US. Even with Trump’s proposed tariffs on vehicles made in Canada and Mexico, S&P Global estimates Hyundai-Kia’s profit impact to be minimal -- less than 2 percent.

The bigger risk, however, lies in South Korea. If Trump’s so-called universal tariff plan -- targeting imports from all countries -- is enacted at a 20 percent rate, Hyundai-Kia could face a sharp 19 percent EBITDA decline. This is because a significant portion of its vehicles sold in the US are manufactured in South Korea.

During his campaign, Trump floated the idea of a universal tariff system that would impose a flat 10 to 20 percent tax on all imported goods, including vehicles. While specific details remain unclear, S&P Global’s analysis assumes a scenario where small passenger cars and light cargo vehicles are taxed at 20 percent if imported from countries like South Korea, Europe and the UK.

Broader auto industry prepares for fallout

According to the report, this could ripple across the global auto industry, with major automakers such as General Motors, Volvo, Jaguar Land Rover and Stellantis potentially seeing an up to 17 percent drop in their EBITDA by 2025. Toyota and Volkswagen could also see profitability decline by up to 20 percent, while Hyundai-Kia’s risk varies depending on which countries are targeted.

Hyundai-Kia’s exports to the US from Mexico and Canada pale in comparison to those of US automakers. For instance, Kia’s plant in Pesqueria, Mexico, produces around 300,000 vehicles annually, but only about 160,000 are shipped to the US. This figure is significantly lower than GM and Ford, whose exports from Mexico to the US account for 12 percent and 9 percent of their total sales, respectively.

“Hyundai-Kia is relatively insulated from North American tariffs, but universal tariffs including South Korean exports would be a far greater challenge,” said Yoo Ji-woong, a researcher at Daol Securities. “If tariffs raise costs on popular South Korean-made models like the Tucson, they could lose pricing power in a highly competitive market."