Nomura "US Fuel Efficiency Relaxation, Opportunity for Hyundai·Kia…Negative for Tesla"

Nomura "US Fuel Efficiency Relaxation, Opportunity for Hyundai·Kia…Negative for Tesla"

Nomura Securities analyzed that Hyundai Motor [005380] and Kia [000270] would benefit significantly as the US government substantially eased automobile fuel efficiency regulations.

According to Nomura on the 29th, researcher Angela Hong stated in a report from the previous day that former US President Donald Trump's move on the 26th to significantly roll back Corporate Average Fuel Economy (CAFE) standards would be "somewhat negative for companies solely focused on electric vehicles, but slightly positive for traditional manufacturers with a high proportion of internal combustion engine and hybrid vehicles."

With this measure, the average fuel economy standard to be achieved by 2031 has been lowered from 50.4 mpg, as proposed by the Biden administration, to 34.5 mpg. Nomura interpreted this as an extension of the trend of reduced support for EV policies.

Researcher Hong judged that the positive effect on Hyundai Motor and Kia would be greater (net positive). This is because the lifespan of their highly profitable internal combustion engine and hybrid businesses would extend, but considering their export exposure to heavily regulated European and Chinese markets, their long-term EV investment plans would not change.

If regulatory hurdles are lowered, traditional manufacturers can continue to produce high-margin pickup trucks and large SUVs without the burden of federal fines. Nomura believes this allows them to use their secured profits as resources to pursue a more gradual and demand-driven transition to electrification.

Conversely, Tesla and Rivian are expected to be negatively impacted. This is because their revenue source from selling regulatory credits to traditional manufacturers, who previously had to meet CAFE standards, will decrease.

For Hyundai Motor and Kia, the impact is expected to be greatest in their US-produced SUV lineup, which has significant pricing and margin potential.

While some demand may shift to internal combustion engine vehicles, the upward trend in US hybrid penetration is expected to continue. The proportion of hybrids in the US market increased from 3% in 2020 to a cumulative 16% by August 2026. High oil prices and Hyundai Motor and Kia's hybrid lineups were cited as reasons.

Nomura maintained its "buy" investment rating for Hyundai Motor and Kia, keeping its early-month price targets of 520,000 won for Hyundai Motor and 220,000 won for Kia. Currently, Hyundai Motor's stock price is around 349,000 won, and Kia's is around 115,000 won.