How Hyundai beat Volkswagen by cracking the formula for surviving China's price war

[NEWS ANALYSIS]

Hyundai Motor Group has overtaken Volkswagen Group in operating profit since the beginning of last year, and is closing in on the German marque’s once-unassailable edge in vehicle sales.

Volkswagen’s recent announcement that it will cut 15 percent of its global work force across all of its brands, which include the likes of Audi, Porsche, Lamborghini and Bentley, along with the prospect of plant closures, has only sharpened the sense that Hyundai’s ascent may not stop at profitability alone — and could extend to sales volume as well.

"There's a real chance Volkswagen falls short of its revised 9 million-unit target at this pace, and Hyundai keeps closing the gap in sales volume," said Kwon Yong-ju, a professor in Kookmin University's automotive and transportation design department.

Volkswagen's sales totaled 4.41 million units in the first half of 2025 compared to Hyundai's 3.65 million units, a gap of roughly 760,000 units. But in the first half of this year, the German brand's sales had fallen to 4.13 million and the Korean automaker's to 3.6 million, narrowing that gap by about 30 percent to roughly 530,000 units.

By operating profit, the Korean auto group has outpaced Volkswagen since the first half of 2025, a lead it has held again this year.

The diverging fortunes of the two automotive powerhouses, analysts say, trace back to their strategies against the inflow of price-competitive Chinese cars, as Volkswagen remains tethered to the Chinese market and a volume-driven model, while Hyundai has pivoted toward higher-margin electric and hybrid vehicles, prioritizing profitability over sheer sales volume.

Margins over volume 

As EV demand cooled amid market saturation and the expiration of U.S. tax credits, Hyundai Motor Group, which includes the Hyundai, Kia and Genesis brands, swiftly moved to ramp up hybrid production, and its global hybrid sales jumped 23 percent on year to 1.12 million units last year, around 15 percent of its total sales.

Sales of Volkswagen's hybrids, which consist mostly of plug-ins, stayed at roughly 430,000 units over the same period, or just about 5 percent of its sales.

Hybrids typically carry margins around 10 percent higher than conventional gasoline vehicles thanks to low costs of development and manufacturing, while the fuel efficiency lets automakers command premium pricing.

Sales of Hyundai’s hybrid cars jumped 74 percent in the U.S. market in June thanks to variants of the Santa Fe, Sonata, and Tucson, while sales of the full EV Ioniq 5 and Ioniq 6 fell 26 percent and 95 percent during the same period. 

Kia's turnaround has been even sharper: The launch of a hybrid Telluride helped propel Kia's June hybrid sales up 187 percent on year.

"Hyundai understands that the era of chasing volume growth is over, and that has put it on a fundamentally different strategic path than Volkswagen," said Prof. Kwon.

The newly launched Avante — called the Elantra in most markets and long billed as an affordable option for everyday buyers — now starts at 23.98 million won ($17,000), a price increase of more than 3 million won over the previous generation.

That puts it above BYD's Dolphin hatchback, which starts at 24.5 million won but drops to roughly 23.41 million won after manufacturer incentives.

"The price hike on an entry-level car like the Avante shows Hyundai is no longer chasing sales volume but margin," said an executive from the Korean automotive company. "It appears that they've recognized they simply can't compete with Chinese brands on price and decided to concentrate on defending profitability."

In fact, Volkswagen, which used to lead in the Chinese auto market since its entry in 1984, saw profits slide sharply in recent years due to the births of new local EV brands. Its Chinese sales fell from 3.24 million units in 2023 to 2.69 million last year, with BYD overtaking Volkswagen as China's top-selling automaker in 2024. In 2025, Geely pushed Volkswagen to third place.

For Hyundai, however, China accounts for only about 4 percent of global sales, or roughly 200,000 units.

Selling less, earning more

Hyundai Motor Group posted 20.55 trillion won, or around $14.5 billion, in operating profit last year, far surpassing Volkswagen Group’s 8.9 billion euros, or $10.3 billion. 

Yet Volkswagen was, by volume, the bigger seller. Its revenue, at 321.9 billion euros, is nearly double Hyundai's, and its sales volume of 8.98 million vehicles also outstripped Hyundai's 7.27 million. 

Exchange rates account for some of that gap, but the divergence shows up clearly in operating margin, the key gauge of profitability. Hyundai posted 6.8 percent last year, behind Toyota's 8.6 percent, while Volkswagen managed just 2.8 percent.

The pattern held in the first half of this year. Hyundai and Kia's combined operating profit reached 10.2 trillion won, ahead of Volkswagen's 5.9 billion euros. 

"Even as we've fallen short of our sales targets recently, we've held firm on our operating-margin guidance," said Lee Seung-jo, the chief financial officer at Hyundai Motor, during a earnings call on July 23, adding that the automaker is expected to hit the full-year operating margin target of 6.3 percent to 7.3 percent through “expanded hybrid sales and a focus on higher-value models.”

Investment cuts, a bitter pill 

Market analysts warn that Volkswagen's layoffs and pullback in investment could backfire, widening its gap with Hyundai over the long run rather than closing it.

Volkswagen Group CEO Oliver Blume recently confirmed that the company needs to cut roughly 100,000 jobs — about 15 percent of its 657,000-strong global work force — citing deteriorating finances and market conditions.

The automaker also plans to roughly halve its model lineup, from 150 vehicles to about 75, and scale back annual production capacity, along with a limited restructuring of its four German plants in Emden, Hanover, Zwickau and Neckarsulm, which together employ some 40,000 workers. 

The company's investment plan reportedly has been cut to 135 billion euros from 180 billion euros by 2031, with a goal of lifting its operating margin to 9 percent by 2030 from the current 3.3 percent as of the first quarter this year.

"Volkswagen remains narrowly focused on being a car manufacturer, chasing more sales of what already sells well," Kwon said. "But Hyundai realized that the kind of volume-driven growth is no longer sustainable, and has diversified into other businesses like robotics that give it room to maneuver if the auto industry hits a downturn.” 

Hyundai is developing a humanoid robot, Atlas, through its U.S. subsidiary Boston Dynamics, with plans to deploy the robots on manufacturing floors starting in 2028.

Analysts estimate that replacing the roughly 7 to 8 percent of fixed costs currently spent on labor with robotics — and rolling that out across the entire supply chain — could cut Hyundai's production costs by as much as 50 percent.

“Hyundai has built competitiveness in both automotive and humanoid robotics, and its market capitalization remains undervalued relative to global peers,” Kang Seong-jin, an analyst at KB Securities, said. “Hyundai could approach a valuation on par with Toyota's over the medium to long term."

BY SARAH CHEA   [chea.sarah@joongang.co.kr]