[Edaily Reporter Kim Hyung-wook ] U.S.-based General Motors (GM) posted an operating profit of approximately $3.6 billion (4.9 trillion won) in the third quarter of this year after slowing the pace of its electric vehicle (EV) investments starting in the second half of last year. In contrast, the Volkswagen Group, which has been aggressively increasing the share of its EV sales, recorded an operating loss of approximately 5.86 billion euros (8.9 trillion won) during the same period.

The global automotive industry faces a dilemma regarding the pace of the transition to electric vehicles. While companies must increase investment in and sales of electric vehicles to keep up with the trend toward electrification, these efforts are currently acting as a drag on profitability.

◇Internal Combustion Engines and Hybrids Drive Immediate Profits… EVs Are a Burden

According to an analysis by Edaily on the 8th of the recently announced third-quarter earnings of major global automakers, it was found that for most companies, internal combustion engine vehicles were the main source of profit, while electric vehicles were dragging down profitability.

Toyota of Japan, where EVs account for a small share of sales, recorded the highest operating profit margin among major automakers at 8.4%, bolstered by the weak yen. Although the share of pure electric vehicle sales at Toyota (including Lexus) has risen slightly to 4.7%, its core business remains internal combustion engine and hybrid vehicles.

GM, which began restructuring its EV business in the second half of last year, also saw its third-quarter operating profit margin rise significantly to 7.2% from 2.2% a year ago. This was the result of reducing the share of pure electric vehicle sales in the U.S. from 9.4% to 3.8% and pursuing a sales strategy focused on internal combustion engine vehicles, particularly pickup trucks and SUVs.

In contrast, companies that have aggressively increased their share of electric vehicles have seen their profitability decline. Volkswagen’s operating profit margin, which was negative 1.6% in the third quarter of last year, fell to negative 7.8% in the third quarter of this year. Volvo, which increased its share of pure electric vehicle sales from 22% to 32% last year, saw its operating profit margin drop from 7.4% last year to minus 8.4%, and BMW, whose EV share reached 20%, also saw its operating profit margin fall from 7.0% last year to 5.2%.

Arno Antlitz, Chief Financial Officer (CFO) of the Volkswagen Group, stated, “Since electric vehicles generate lower profits than internal combustion engine vehicles, the burden is increasing as the popularity of electric vehicles grows.”

During the same period, U.S.-based Tesla’s operating profit margin also decreased from 5.8% to 2.6%. This decline in profits resulted from the Trump administration’s relaxation of environmental regulations, which led to a decrease in Tesla’s sales of regulatory credits.

◇Delaying the transition risks losing market share… Pace of transition and cost are key

HyundaiMotor and KIA CORPORATION face the same electric vehicle dilemma. Despite an 11.3% year-over-year decline in sales in the third quarter, HyundaiMotor maintained a relatively healthy operating profit margin of 5.9% thanks to a flexible powertrain strategy centered on hybrid vehicles. KIA CORPORATION, however, sold 7.9% more vehicles—primarily electric models—yet its profit margin (5.8%) was lower than HyundaiMotor’s.

KIA CORPORATION increased the share of pure electric vehicle sales from 9.0% in the third quarter of last year to 14.8% in the third quarter of this year, but this rapid shift toward EVs ultimately weighed on profitability. HyundaiMotor also saw a slight increase in the share of EV sales (7.5%), but it remained relatively focused on internal combustion engine and hybrid vehicles.

Kim Seung-jun, Head of KIA CORPORATION’s Finance Division, stated during the third-quarter earnings announcement on the 30th of last month, “We cannot abandon electric vehicles just because profitability is declining in the short term,” adding, “Through the normalization of incentives and internal cost reductions, we expect electric vehicles to become profitable within two to three years, just like hybrid vehicles.”

As such, while electric vehicles act as a burden on profits the more they are sold, automakers are faced with the dilemma that they cannot simply slow down the pace of transition to the growing electric vehicle market. Total new car sales in the third quarter of this year fell 5.8% year-over-year to 19.64 million units, but sales of pure electric vehicles (approximately 4.2 million units) rose 11.0% during the same period. The share of pure electric vehicles also increased from 18.2% to 21.4%.

Experts assess that automakers can only survive by diversifying their strategies with market-specific powertrains while ultimately securing competitiveness in the electric vehicle sector.

Global consulting firm AlixPartners warned, “China is bringing new vehicles and technologies to market with shorter development cycles,” adding, “While demand for internal combustion engine and hybrid vehicles in the U.S. market offers short-term profit opportunities, resting on these laurels could lead to a loss of long-term competitiveness.”