Hyundai Motor Company (005380.KS) Earnings Call Transcript & Summary

Good afternoon. I am Jae Hoon Chang, President and CEO of HMC. I would like to thank everyone participating in HMC's 2024 CEO Investor Day as well as those of you joining us today online. Your continued love and support for HMC has made today's event possible, and I ask for your continued interest. As you just saw in the clip, HMC is soon to achieve the milestone of 100 million accumulated vehicles production this year. This achievement will make us the fastest major global automotive OEM to reach 100 million total vehicles produced from the founding date and marked the beginning of our push to becoming a future mobility brand. Building upon the unique HMC DNA, which made this achievement possible, we look forward to preparing for the upcoming future. During last year's CEO Investor Day, I discussed how our strength as a legacy OEM with a diverse powertrain portfolio, including ICEs, hybrid and EVs, will be used to flexibly convert our existing production facilities to match the speed of the EV transition. Our unique strategy, the Hyundai Way, was emphasized to most effectively and efficiently secure top-tier EV leadership. Looking back the past year, there were major changes to the automobile market with the rosy projections for the EV transition giving way to heightened concerns as the transition began to slow. However, HMC was able to secure profitability and EV competitiveness in response to the aforementioned shift in the market demand, thanks to our flexible response capabilities. Last year, HMC recorded a highest ever operating profit margin of 9.3% and a highest ever operating profit and revenue in Q2 of this year. We also received an A rating this year from the 3 major global credit rating agencies, high ratings in product and brand competitiveness, profitability and financial soundness and ranked among the global top 3 in sales with 4.21 million vehicles sold in 2023. These achievements were possible thanks to our tireless efforts to improve sales fundamentals and reduce material costs, including expansion of volume in developed markets, an adjustment to mix our focus on high value-added models such as Genesis and SUVs. HMC is receiving high praise from our customers and the media and excellence stands out in the auto market with total Genesis sales reaching 1 million in 2023, and total global hybrid sales recently exceeding 2 million. HMG is taking first place in J.D. Power's 2024 initial quality survey. IONIQ 5 N was awarded at the 2024 TopGear Electric Awards and the XCIENT Fuel Cell electric heavy-duty trucks recently surpassing a cumulative driving distance of 10 million kilometers in Swiss fleet usage. HMC will continue to build upon the achievement to solidify our presence in the automobile market. Now at today's CEO Investor Day, to become a smart mobility solution provider, I will discuss HMC's mid- to long-term strategy, Hyundai Way, to prepare for the upcoming future. Amidst uncertain market conditions, Hyundai Way seeks to secure a sustainable leadership through Hyundai's unique flexible response system, so-called Hyundai Dynamic Capabilities while agilely responding to the market, mobility and energy will be our 2 pillars in creating the new feature. So let me delve into the Hyundai Way strategic direction. First is Hyundai Dynamic Capabilities. Hyundai Dynamic Capabilities embody the production flexibility-centered Hyundai Way. In the short term, it means responding flexibly and agilely to the rapidly shifting market environment. And at the same time, in the long term, it means continued efforts to maintain superior competitiveness. This would be our core competency. The shift to EV is currently slowing down. However, in the long term, it is abundantly clear that the market and HMC's path forward leads towards electrification. In the short term, we will respond closely to any shifts in the market demand while at the same time, utilizing our existing capabilities to focus our full efforts into preparing for EV transition in the long term by establishing EV competitiveness. In this part, I'm going to discuss how HMC will secure profitability during the slowdown in the EV transition and how we will respond and establish top-tier leadership to prepare for a transition to pick up pace again. With the recent slowdown in the EV transition, the demand for hybrids has been picking up, with hybrids now being seen more as a basic choice of vehicle rather than a placement for ICE. The hybrid system, TMED, which HMC developed in-house, is leading the hybrid market. The next-generation hybrid system, which will be deployed starting January 2025, features the great improvements to performance and fuel efficiency, and possesses top global competitiveness. And this is TMED-II. The hybrids we have set to release in the future have even greater marketability, featuring hybrid specialized premium technology, such as smart regenerative braking, V2L and more. Building upon our hybrid competitiveness, we are looking to expand our hybrid line, past the sub-midsize and midsize segments to which they have been limited to include compact full size and luxury segments and over expansion of our existing 7 models to 14. We are looking to respond to diverse customer needs, which means hybrid version of not only Hyundai brand models, but luxury Genesis brand models as well with the hybrid option to be offered for all Genesis models excluding dedicated EV models. So the expansion of HMC's hybrid lineup is connected to our plans to significantly expand our hybrid sales with a sales target of 1.33 million hybrid in 2028, a more than twofold increase over our sales plan from the previous year. We made a large upward adjustment to our hybrid volume to 690,000 for the NA market in which demand for hybrids is expected to grow consistently to 2023. And our plan to expand sales in line with hybrid demand in Korea, Europe and other regions. To make this possible, we are actively utilizing our key global health plans and have established mixed model production systems and component supply chains through our hybrid launches. At HMGMA as well, which was established as a dedicated EV plant, we are planning to produce hybrid vehicles. In doing so, our goal is to respond quickly to the shortage of hybrids in the NA market and improve our plant uptime. Our second plan to respond to the EV transition slowdown is extended range EVs, EREVs. As of late, as the EV transition has slowed, there have been predictions that decreasing EV sales will be insufficient to respond to ever structured automotive-related environmental laws. And at the same time, many consumers are thinking twice before purchasing an EV due to concerns over charging and more. EREV is a vehicle that can become an answer to this, which introduces the advantages of both internal combustion engines and electric vehicles. It operates only with electricity like EVs, but when the power is low, the engine targets the battery to provide a much longer range than EVs. HMC is developing a unique new PT/PE system for our EREVs, which combined the strength of an ICE and EV in one, enabling 4-wheel drive with two motors, which our competitors have not accomplished. In other words, since EREVs do not use their engines to drive, they are considered the same as EVs by any environmental standards. And on top of that, they are favorable compared to hybrids and plug-in hybrids regarding greenhouse gas restrictions, which gives them even better business viability when it comes to regulations. EREVs have a range of up to 900 kilometers on full charge and can be refueled with electricity and gas at the same time to reduce charging stress. Overall, lightening the burden on the drivers and acting as a key stepping stone to bridge the gap in the EV transition. In addition to provide reasonable prices, most of the existing engines have been used and by reducing the battery capacity, which takes a big portion of the cost to 30%, we were able to secure better price competitiveness compared to same in-class EVs. Even compared to plug-in hybrids, our target is to develop a competitive selling price, especially in the U.S. By providing the unique driving value that had been limited to EVs to EREV customers, we are enabling them to smoothly transition to an EV purchase as EV demand recovers in the future. The aforementioned EREVs, the mass production in NA and China is planned to take place by the end of 2026 and to go into sales as of 2027. In NA, Hyundai and Genesis brands D-class SUV models will be deployed first to respond to the remaining demand for internal combustion engines. And mass production will begin in 2027 with the sales target of over 80,000 units. Meanwhile, in China, where price competitiveness is important in an eco-friendly car market, economy C-class platform will be used to sell more than 30,000 units. And for other regions, we will consider further expansion in line with regional market conditions in the future. Likewise, while responding to the EV transition slowdown with hybrids and EREVs, HMC is planning to begin expanding our EV lineup by 2030, in line with the demand recovery forecast. Specifically, we are planning to launch 23 new models by 2030 to provide consumers with a wide variety of options, including a full line of EVs from economy to luxury and high performance, giving them more choices. So far, HMC's IONIQ allowed us to solidify our position in the EV market. And the Motorsport's heritage, which we have accumulated through internal combustion engines was leveraged to launch N brand's first high-performance EV IONIQ 5 N. This high-performance vehicle, which can complete the Nürburgring circuit twice, not only provides the joy in driving which still is yearned in the era of electrification, but it's also an integration of Hyundai Motor's advanced electrification technology, including a motor system that greatly enhances performance, a high power battery and an innovative battery heat control system. Based on such superior electrification technology, HMC will provide an even more complete and safer EVs. Our luxury brand, Genesis, will also have its EV lineup expanded to continue the luxury brand value that has been secured in the ICE market. In addition, starting with GV60 Magma concept unveiled in New York last March, we will unveil a new chapter of high-performance luxury that maximize quality and performance. Next, I would like to share our EV sales plan. In line with the delay in the EV transition in the short term, HMC will respond to the market with hybrid and EREVs but will remain -- but will maintain the 2 million EV sales goal for 2030. The transition delay will push back some EV launch dates, but with better product value and price competitiveness, we will flexibly manufacture and sell better EVs so that when the electrification trend accelerates, sales plan can be modified accordingly. In the ICE era, it took nearly 100 years for car brands to expand into luxury and high performance. However, in the era of electrification, HMC is a leading brand that has delivered all lineups, spanning from popular brand models to luxury and high-performing models in the fast -- at the fastest rate. With the history of top-level technology accumulated over the years and bold initiatives for innovation under our belt, HMC will continue to be prepared for the upcoming electrification era and lead the EV market. Next, our Head of Hyundai Motor in North America and Global COO, President, Jose Munoz will present details on the strategic directions of Hyundai Dynamic Capabilities. Jose?

Good afternoon, everyone. I often say it is a great time to be at Hyundai and I mean it. Our Executive Chair has laid out a compelling vision for the future of how people and goods will move more sustainably, safer and more efficiently. This includes cars, commercial vehicles, autonomous driving, robots, EV tolls and while continuing the transformation to electrification and developing a hydrogen economy. On the car side of the business, Hyundai is on a roll globally and in North America. The company is delivering beautifully designed, high-quality, safety-focused, eco-friendly vehicles with technology that customers want and value. From design, R&D, manufacturing, sales, service, our dealers and our suppliers, there are so many women and men working hard to deliver value to our customers. For Hyundai and Genesis, we are targeting 5.55 million vehicle sales by 2030, an increase of over 30% compared to sales last year. As a result, Hyundai Motor Group is now the third largest automaker in the world by sales. Our team has helped deliver incredible performance and growth over the past 5 years and have even higher ambition for the next 5 years. As you know, Hyundai Motor Group is an engineering powerhouse, and we are leveraging the full capabilities of the group to drive the car business. As we continue to grow in regions around the world, it is increasingly important to localize vehicles to meet specific customer taste and comply with regulations. Therefore, we continue to empower our regional organizations with a broad set of initiatives to deliver on our ambitions. North America, where we continue to grow is a great example of how we are doing this successfully. Firstly, we remain committed to the dealer model and will continue to strengthen our relationships as we continue our fewer, bigger, better dealer network strategy. For customers, we are continuously introducing new financing and ownership models, new incentives as well as improving our digital experience to attract customers. We're localizing our product lineup with features and design relevant for local markets, this includes ICE, hybrid and electric vehicles. We are also localizing our manufacturing footprint where needed and optimizing our inventory distribution to better regional demand. We continue to innovate our marketing and new mobility offerings as well. And last, but not least, we are bringing in strategic partners to accelerate our growth and capabilities. Across the world, we are engaging in a number of initiatives to strengthen our position in key markets. In North America, we are continuing to push the boundaries on vehicle design and the price competitiveness. Hyundai has 6 of the top 10 most fuel-efficient EVs in the market and hit new sales records for the IONIQ 5 and IONIQ 6, which has led to Hyundai and Genesis capturing 11.2% share of the U.S. EV market. Our success is not only limited to battery electric vehicles, we're focused on offering a broad portfolio of electrified options for customers and our HEV sales saw a 42% increase in Q2 versus the year prior. In Europe, we remain steadfast in our commitment to our dealer network and continue to explore initiatives to strengthen our collaboration. We have established a new sales entity in Sweden based on regional demand and will continue to expand our sales organization. As we invest in our dealers, our dealers continue to add tremendous value for us. We are very pleased to have reached dealer exclusivity with over 90% of our network. While we are laser focused on the important profitable markets in North America and Europe, we are also focusing on key growth markets in the Middle East, South America and Asia. In South America, we are regionalizing our product lineup, introducing new ownership models, and most importantly, unifying our dealer network. We have merged our dealers into a single network, each with access to Hyundai's full lineup of vehicles. We are harmonizing our technology systems across the network, from sales and delivery, warranty management and customer care. In the Kingdom of Saudi Arabia, we have partnered with the Public Investment Fund to build a new CKD plant with 50,000 production capacity for Hyundai vehicles, starting with the KONA and IONIQ 5. We are in construction today and plan to start production next year. In Asia, we have established a new regional sales office in Vietnam and a breakthrough go-to-market strategy in Japan. I would like to highlight our new battery plant in Indonesia in partnership with LG Energy Solution. We are localizing our supply chain and strengthening resiliency in the region to serve our various manufacturing facilities in India, Indonesia and Singapore. To achieve our sales target of 5.55 million units, we are adding 1 million units of additional production capacity by 2030 through the establishment and expansion of new manufacturing facilities. To continue to lead the transition to electrification, we are opening Hyundai Motor Group Metaplant America in the U.S. this year and a dedicated electric vehicle factory domestically in Ulsan by 2026. Additionally, to strengthen our footprint in growth markets, we have acquired a facility in Pune, India, which is set to commence operations next year. This will add an incremental 250,000 units in India. Furthermore, we will maximize the utilization of facilities in China and Indonesia, and actively pursue market expansion through our CKD business in countries across the Middle East, Asia Pacific and other regions to increase our market share. We opened Hyundai Motor Group Innovation Center Singapore as a testing ground to explore new possibilities in advanced manufacturing technologies and processes. We embed smart manufacturing with the use of robots to automate assembly and logistics throughout the production line. We set a new benchmark in sustainability with over 2,600 solar panels on the rooftop that generate 1.8 gigawatt hours of renewable energy annually. [ HMB ] is also customer-centric. There is a beautiful Skytrack Lounge on the roof where visitors can test drive our IONIQ vehicles on our rooftop track. Hyundai's production system embraces continuous improvement at its core, and the best practices from [indiscernible] are transforming the way we produce our products globally. Our new operations in Singapore and Georgia are only the beginning of how we will introduce new manufacturing technologies globally. Singapore is our first phase where we are developing and testing the most innovative production techniques. HMGMA is our second phase, where we are applying our proof of concepts from Singapore and scaling them to accommodate the volumes of HMGMA. From assembly automation, robotic logistics and intelligent technologies, we are adopting over 3/4 of our innovative technologies from our Singapore facility. These manufacturing innovations are yielding exceptional results. Compared to our existing facility in the U.S., our new HMGMA plant increases automation, expands our mixed model production capability and improves plant productivity by 20%. Finally, we are applying best practices in quality, safety, delivery, sustainability and efficiency to all of Hyundai's manufacturing facilities. One very exciting development in North America is our new manufacturing facility, Hyundai Motor Group Metaplant America. We broke ground in October 2022, and began construction early last year for our new Metaplant facility that will be home to all of Hyundai Motor Company's brands, Hyundai, Genesis as well as Kia. HMGMA will have a capacity of 300,000 to 500,000 vehicles per year, and will produce our award-winning IONIQ 5 as well as our highly anticipated brand new three-row fully electric SUV IONIQ 9. This state of the facility is employing the most up-to-date manufacturing technologies designed to maximize quality, safety, reliability and efficiency. As I often say, it is not easy building cars and doing it profitably. We have one foot in the present and another in the future. Hyundai Motor Company is committed to stay at the forefront of the automotive industry by leveraging the resources in the group and collaborating strategically with other global leaders. We are innovating across our core car business and throughout the mobility space. Leading automotive, Hyundai is on a roll. Every part of the value chain is doing well and contributing to our success, from design, R&D, manufacturing, marketing, sales and service as well as our supply chain. We are pioneering new more efficient manufacturing technologies in Singapore and at our new facility, HMGMA in Georgia. In mobility, new business and services, hydrogen energy is a key focus area of Hyundai through strategic partnership with H2 Energy and [ BIA ], we aim to accelerate the development of our comprehensive hydrogen ecosystem. To enable our digital transformation, we are actively pursuing cloud service partnerships to leverage the strength of Hyundai Motor Group. Furthermore, we are exploring opportunities to reinvent the customer experience through technological collaboration with Amazon, including the potential to expand our sales channels, reimagine capital and finance. We have the best partners in the business and great relationships with them. We are collaborating with global banks like Santander, Societe Generale and BNP Paribas to offer enhanced payment options and convenient financing for our customers globally. I hope it's clear that we have a very informed point of view about the future of mobility and that we are leveraging best-in-class partnerships to achieve our vision. Thank you very much.

Next, Senior Vice President, Chang Hwan Kim from the Electrification Energy Solutions Tech Unit will give his presentation on HMC's battery solution technology.

Good afternoon. This is Senior Vice President Chang Hwan Kim from the Electrification Energy Solutions Tech Unit. I'd like to brief you on HMC's battery strategy. With the advancement of the electrification era, differentiated battery technology and development capabilities are becoming ever more important for global automakers. Batteries have a big impact on cost competitiveness as they take up the largest proportion of EV cost and are extremely important in terms of safety such as the prevention of fire risk. Hyundai Motor Company for the past 20 years have developed eco-friendly cars and have been able to provide a customer with safe and convenient way to use EVs while also providing a competitive battery solution. We believe that electrification is something that is coming and we must prepare for and to overcome the recent EV chasm and to open electrification era, we want to continue strengthening our battery competitiveness, especially the safety of battery system is critical. And at the end of my presentation, I will give you more detailed information on our battery technology for a safer EV. So first, please allow me to explain on what path we have taken to internalize our battery development capacity. HMC does not make our own battery. However, we know the customer value, safety and functions needed for eco-friendly cars, how it must be designed and how it must be used. This information, we know much better than the battery producers, and we are continuing technology innovation in this area. 2006, HMC launched Verna Hybrid and have applied the hybrid battery for the first time. 3 years later in 2009, compared to our competitors, a differentiated hybrid performance was deployed. And as the first car OEM, we have added the lithium-ion battery to our Avante hybrid car. At that time, competitors were very hesitant in applying lithium-ion batteries. However, we continued our efforts with Korean battery companies and have improved the battery system performance to 60% achieving mass production. This really shows the persistence and the spirit of challenge of HMC and allowed this result to happen. And since then, HMC's passion for EV and battery development has begun. Afterwards, we have mass produced various hybrid models and to secure price competitiveness of batteries, we have additionally nurtured Korean battery producers and went into EV development by collaborating with overseas battery suppliers as well so that we can diversify our sources while also having a secure and competitive supply chain. Based on such efforts in 2021, we have applied our first dedicated EV -- E-GMP platform to IONIQ 5 and based on the battery technology that we have accumulated as well as collaborating with battery companies, we have achieved the fastest charging speed to 18 minutes of the global car OEMs. Based on such developed capacity, the Santa Fe Hybrid, which was launched last year, we have added the hybrid battery cell, which we have self-designed and we're able to meet the function cost and durability goals that is needed for the battery system for hybrid SUV cars. Likewise, you can see that to achieve consistent leadership in the future, we are accelerating the research for batteries for new generation. Here is the [indiscernible] R&D center. And soon, we are going to open a next-generation battery R&D center. And they will be looking into solid-state batteries as well as next-generation battery development. As mentioned before, based on a long time history of battery development competency and efforts, we are now able to timely respond to various market and customer needs. And we are the only global OEM, where we have a diverse range of batteries from 48 volts to 800 volts that can go into passenger cars and commercial vehicles. So we have a full line of battery systems. Furthermore, battery cells, modules, pack and BMS, in these areas, we have widened the technology gap to provide a differentiated eco-friendly cars and performances. A key example of this would be the differentiated battery cell and performance as well as the cooling and control technology of the battery system, which showed that the IONIQ 5 N could be run two rounds of the Nürburgring circuit in Germany without any drop in the performance. To overcome the current EV chasm, we must have our own competitive battery solution to meet a more diverse customer needs than now, and to enable that and to achieve price competitiveness and performance, we need a cost-effective battery cell chemistry and diversification. The current performance NCM battery and low-cost LFP battery, not only that, but mass NCM battery must be newly developed, so that by 2030 we can provide diverse range of solutions. Of that, volume EV will be using a new mass NCM battery where it will be 10% less in terms of cost, but also have the same energy density and performance of the existing NCM battery and you will see that this will now become a mass EV in the future. Furthermore, the optimized battery CTV that we have, so called cell-to-vehicle structure, will also be applied from the CTV structure, excuse me, battery and body will be integrated to lower the number of parts and the battery integration will be improved, so that compared to previous ETP system, the weight goes down by 10%, and the material cost, excluding cell can be improved by 30%. In addition, we also need to sophisticate our cooling technology and other new technologies will be developed so that we can provide EVs to our customers with the best battery solution that is [indiscernible] to overcome the current chasm. Next is the battery safety, which is the big issue these days, how we are going to enhance our battery safety technology. HMC is aiming to develop a battery system that does not have any fire risks. Recently, battery producers have made significant development in terms of quality and process and they are making battery cells in various new techniques. However, if there is a problem with the cell, we will be conducting pre-diagnosis of the BMS so that accidents can be prevented. The BMS technology that is applied to our EVs will be run not only during driving or charging, but also when the engine is off, so when the car is stationary, so that any anomalies can be detected in the cell, and minor short circuits will be detected and the diagnosis algorithm will be applied so that potential defect can be prevented priorly, and any defects or anomalies detected will be shared with the customers through text messages. Such sophisticated BMS will be monitoring the health state of the battery while also predicting the battery life. And based on the AI model in the future, we will also have a more accurate prediction of how the battery life can be managed. Next, I would like to explain on the system safety structure. For various reasons, if for some reason, a fire does happen from the battery cell, it's important that the heat is not transferred to other cells. HMC's battery system, regardless of the cell's form factor, emergency vents, fireproof materials and heat transfer prevention structures will be applied. So that even if there is a fire, the flame exposure can be delayed as much as possible or not exposed at all. Now our efforts on such battery safety technology is something that has been built since our ICE era, and it's part of our efforts to ensure that quality comes first. We will not stop here. And in the future, we'll ensure that we provide the safest car to our customers. Thank you.

Next, our Head of [ AVP ], Execution and Head of the Global Strategy Office, Executive Vice President, Heung Soo Kim, will take the floor.

Good afternoon. I'm EVP Heung Soo Kim of GSO. The second part of the Hyundai Way, we will discuss the mobility game changer strategy that embodies on this software transition technology -- strategy, excuse me. HMC will continue to improve its products and services based on software and AI and lead the change in the mobility ecosystem by focusing on developing software-defined vehicles and various new mobility projects. HMC is advocating for a transition in its development system towards SDV by incorporating software development methodologies into vehicle development. The key to SDV is as follows: first would be the development of hardware devices that can collect various internal -- external data from vehicles; and secondly, the overall control of the vehicle interface based on software. HMC will ultimately transform vehicles into learning machines that autonomously learns and improves the integration of AI, utilizing data collected from SDV vehicles. This will improve driving, safety and convenience functions even after purchasing the vehicle as well as continuously giving an update to the new app services to improve usability, while also connecting all your daily movements seamlessly. Furthermore, HMC is building data infrastructure that can create, collect and utilize large-scale data in various fields by connecting fleets, logistics and urban transportation infrastructure to SDV devices. Based on AI and digital twin technologies, we will efficiently manage the real-time fleet operation and traffic conditions of various mobility and continue to advance cybersecurity technologies to develop safer and more reliable connected services. In addition, we will create a SDV ecosystem by working with third-party developer SDK and app market, so that various IT developers and mobility service providers can develop various services using HMC's data infrastructure. HMC is developing a high-performance vehicle computer based zonal electric and electronic architecture for SDV devices optimized in terms of control, communication and power. This architecture simplifies existing complex vehicle structures reducing development time and cost and increases software modification range, enabling faster service and functional improvements and deployment. In addition, we will develop a next-generation infotainment system and an open ecosystem designed to create a user centered environment. This will encourage more people to spend time in their vehicles, facilitate the creation of additional services and enable more connections to be made. To this end, we're implementing Android Automotive, which has already secured many users and developers and developing center displays of various proportions to meet customer preferences. We are also developing our own Android-based open OS and in-vehicle app marketplace. Additionally, we are enhancing and upgrading features that assist drivers by providing safety and convenience through interactive AI powered by a large language model. In addition, we are developing various connected service apps that cover the entire mobility lifestyle, such as charging and parking based on vehicle data. Next is the strategy -- on the advancing strategy for autonomous driving technology. HMC is enhancing its technology with the primary focus on safety in the development of autonomous driving technology. First, we will establish a system that continuously learns with AI models automatically and simultaneously collecting autonomous driving data. As the scale of data increases in the future, we will enhance the implementation of a safer and more advanced autonomous driving technology. In addition, developing a computing system that safely controls autonomous vehicles under any circumstances is also a key element in the development of a safe autonomous driving technology. And to this end, HMC is developing autonomous driving computing hardware with stability and reliability, such as functional safety and redundancy. In this regard, we are focusing on developing an end-to-end deep learning model that performs cognitive judgment control and will expand it to a global solution that can be extended from Level 2+ to Level 4 in the future. In addition, HMC is enhancing its internal capabilities to develop key components of autonomous driving, so that the company remains committed to providing a safer and improved experience for both drivers and pedestrians. By integrating all technologies related automobile, including autonomous driving and smart factories into a single software platform, we will accelerate innovation in vehicle software and progressively enhance SDV. Currently, the controller OTA function is integrated into the vehicle to continuously enhance its quality and marketability. Starting in the first half of 2026, the next-generation infotainment system based on AAOS will be gradually implemented in mass-produced vehicles. This initiative aims to create an environment where HMC's customers can conveniently access a variety of AI services. Also in the second half of 2026, we will launch the SDV Pace Car with the HPVC-based electric and electronic architecture currently under development to realize faster and more stable autonomous driving and AI functions and demonstrate new mobility services and businesses. From now on, we will expand our SDV full-stack software technologies to all models so that we can provide a moving experience that continuously improves and enhances in all models of HMC. Now I'll move on to the new business deployment plan. HMC plans to launch a foundry business that sells autonomous vehicles to various global autonomous driving software technology companies by utilizing its hardware development capabilities and manufacturing competitiveness. Our company has extensive experience in developing self-driving vehicles through collaboration with Motional and is expanding its partnership with various global leaders in autonomous driving to enhance the development and manufacturing capabilities of the world's leading autonomous vehicles. HMC intends to create a shared space that is crucial for the implementation of Level 4 or higher autonomous driving as a platform. Additionally, it will provide autonomous vehicle platforms to global developers of autonomous driving software, ultimately, by leveraging the capabilities gained through collaboration with the various global leaders in autonomous driving, we will continue to enhance HMC's autonomous driving technologies and generate profits by expanding our foundry business, utilizing the established autonomous driving -- autonomous vehicle platform. The autonomous vehicle service will expand into the global market, emphasizing Motional's cutting-edge autonomous driving technology. First, we will enhance our business experience and technical skills through operations in NA by leveraging IONIQ 5-based second-generation robotaxi platform. This initiative will enable us to develop the third-generation robotaxi platform and optimal models to expand our robotaxi service area into the global market. In addition, we will create a sustainable R&D environment and diversify our profit models, including sales, delivery and advertising of Level 3 solutions. This will be based on our advanced capabilities in Level 4 autonomous driving technology, allowing us to adapt flexibly to changes in the autonomous driving market space.

Executive Vice President, Ken Ramirez will make a presentation on the Energy Mobilizer Strategy.

Good afternoon, and thank you for joining us today. My name is Ken Ramirez, and I am the Head of Hyundai's Global Commercial Vehicle and Hydrogen Business Division. It is my honor to present to you today Hyundai's pioneering efforts towards the global hydrogen energy transition and how we are uniquely positioned to lead the rapidly growing hydrogen businesses across the entire value chain. In 2021, Hyundai Motor Company announced our vision to achieve net zero by 2045. Our goal is to become carbon neutral across all stages, and an integral part of this journey is our expanding adoption of hydrogen energy solutions well beyond transportation. Hydrogen is an efficient, clean and sustainable energy carrier. The hydrogen fuel cell emits only water while producing electricity. And hydrogen is uniquely versatile, used as an energy storage and in a variety of applications, including mobility and industrial use cases. As the most ubiquitous and abundant element in the universe, hydrogen is all around us in many forms. Producing it as H2 molecules can be derived not only from water electrolysis, but also from such organic waste and even plastics. It helps ensure energy security, so hydrogen is also fair by mitigating energy imbalances from geoeconomic disparities. This is one of hydrogen's true society values, that it's more inclusive and available to regions where other energy solutions are less accessible. And it leverages renewable energy sources that would otherwise be underutilized. All of these attributes make hydrogen a key factor towards achieving carbon neutrality, resulting in an increasing hydrogen demand for the global energy transition. According to Bloomberg New Energy Finance report, the global hydrogen demand will continue to steadily mature, growing to well above 100 million tons by 2030 and nearly 400 million tons by 2040, with clean hydrogen taking a significantly leading role and a sharp growth in the overall demand. Hyundai has long held the conviction that hydrogen will be a key pillar for a sustainable society, starting with mobility adoption. For almost 3 decades, Hyundai has been at the forefront of the hydrogen mobility momentum. Ever since we initiated hydrogen fuel cell research and development in 1998, we have achieved many firsts, including the world's first mass-produced fuel cell electric vehicles, most notably the ix35 fuel cell passenger car and the pioneering Class 8 heavy-duty truck, XCIENT, all equipped with our very own fuel cell system. Hyundai is uniquely positioned as a key player across the entire hydrogen value chain, thanks to the broad competencies of our affiliates within the group. This is reflected in our HTWO brand. The HTWO logo neatly encapsulates the hydrogen for humanity message with 2 interlocking Hs. HTWO conveys our conviction that hydrogen is the key to a cleaner future for our society and generations to come. Hyundai's bold identity as an energy player builds upon this core as a mobility company. Our unmatched cross-industry capabilities across the value chain positions us uniquely as a global energy transition leader beyond being a mobility offtaker. Hyundai is like no other energy company with roots deeply grounded in mobility, and like no other mobility company with branches so far-reaching into energy sectors. This synergy of mobility and energy results in what we call HTWO Grid, which leverages the vertically integrated group's capabilities across various industries. HTWO Grid illustrates Hyundai's comprehensive presence and demonstrates why Hyundai is uniquely able to deliver true end-to-end solutions across the whole hydrogen value chain, from upstream to downstream, from production to utilization. Upstream, we developed pioneering production methods in converting biowaste and plastic waste into clean hydrogen, while also effectively disposing waste, thus creating a double positive effect. Our waste-to-hydrogen facility is already in operation in Cheongju, where we process biogas from local food waste to extract hydrogen through our unique process. And by the end of this year, we will have another facility running in Cheongju using sewage sludge to produce hydrogen. And beyond Korea, we are building overseas facilities in Poland and Indonesia as well, where the waste-to-hydrogen solution presents a unique opportunity for local needs, yet another truly groundbreaking solution leverages our advanced plastic-to-hydrogen technology. Around 90% of plastic waste is not recyclable, but Hyundai has patented a process that enables us to produce hydrogen from nonrecyclable plastic, also a part of our commitment to the global hydrogen society. Moving downstream to commercial vehicle applications. We have already successfully deployed over 1,000 fuel cell buses and nearly 150 fuel cell trucks globally, including a fleet of 30 XCIENT fuel cell trucks for the NorCAL ZERO Project at the Port of Oakland in California last September. Operated by GLOVIS America, the fleet delivers zero-emission logistics for real customers and represents the single largest commercial rollout of Class 8 hydrogen-powered fuel cell trucks in the U.S. Such port logistics operations serve as a catalyst for the expansion of port decarbonization worldwide, not only at cargo and marine ports but also at airports. For example, we are deploying hydrogen energy systems at the Incheon International's forklifts and shuttle buses. On the business front line, our HTWO brand spans a groundbreaking new business. As announced at ACT Expo earlier this year, together with GLOVIS America, our logistics affiliate in the U.S., we have created a pioneering joint venture called HTWO Logistics to deliver the first clean logistics business, starting operations this fall at the new Hyundai Motor Group Metaplant America in the State of Georgia, the group's first dedicated electric vehicle mass production plant. The HTWO Logistics fleet of Class 8 XCIENT hydrogen-powered trucks will manage roughly half of all the logistics and complete an end-to-end hydrogen ecosystem to reduce the carbon emissions around the new production facility. We are also decarbonizing logistics needs as well. Hyundai [ still is on plant ] already has XCIENT trucks in operation with plans to implement additional trucks between Pyeongtaek Port and ASEAN plant by the end of this year in Korea. Finally, our HTWO fuel cell system, the initial impetus of our HTWO brand and the driving force behind Hyundai's pioneering efforts in hydrogen, is also expanding its scope to lead the acceleration in Hyundai's hydrogen adoption. We are widening our lineup of fuel cell solutions for growing diverse applications in both mobility and energy, including trams, marine and air mobility, stationary power, industrial equipment and more. Our HTWO brand started with fuel cell systems, and we'll continue to keep that core as the brand broadens to boundaries of hydrogen adoption. HTWO will lead Hyundai's expansion into wide hydrogen value chain businesses, and Hyundai will be the catalyst to the world's hydrogen energy transition. We will accelerate the development and implementation of the entire hydrogen ecosystem by providing both the infrastructure and the applications. We are living in a historical moment that is shaping our world to become more sustainable and transform the way we live, work and power our society. The hydrogen society is already a tangible reality, and the hydrogen industry is rapidly expanding. Hyundai is proud to have been among the pioneers and to now be uniquely positioned to lead the global hydrogen energy transition. Our mission has always been clear, and we are more committed than ever to pushing the boundaries of innovation and technology that will benefit our lives, that is progress for humanity through hydrogen. Thank you.

That brings us to the end of the strategies. We will now turn to the finance part, which will be explained by SVP, Seung Jo Lee.

Good day. I'm Seung Jo Lee, the SVP of the Planning and Finance Division. How did you find the Hyundai Way strategy? I hope it gave you a better understanding of our strategy. Now let me begin with our finance part. I will walk you through our mid- to long-term investment plans for the Hyundai Way strategy mid- to long-term profit targets to achieve through that investment and the value-up program based on those profits. Also, for HMI IPO, which many of you could have keen interest in, we will first touch upon the mid- to long-term investment plan and then show a short video clip where our HMI CEO and COO will briefly address it. Let me start by talking about our mid- to long-term investment plan for the strategy. At last year's CEO Investor Day, we announced our plan, KRW 109.4 trillion for the next 10 years, but R&D investment for the next 10 years will be KRW 54.5 trillion; CapEx, KRW 51.6 trillion, up KRW 4.5 trillion; and strategic investment, KRW 14.4 trillion, that is KRW 120.5 trillion in total. Today, at today's CEO Investor Day for our investors to better understand our future investment, let me elaborate on our three strategies mentioned today from an R&D, CapEx and strategic investment point of view. First, we'll invest KRW 92.7 trillion in executing the Hyundai Dynamic Capabilities strategy in hybrid and EREV, which will serve as a bridge along the EV transition and equipping EVs with the next-generation modular architecture. To better respond to the chasm in the EV curve and ramp up our core electrification capabilities, we will invest KRW 37 trillion in R&D, KRW 50.8 trillion in CapEx and KRW 4.5 trillion in strategic investment, so KRW 92.7 trillion in total. Now that the curve of both market expectation and demand of EVs have changed, rather than preparing a single alternative predicting EV markets future and demand, we'll look to flexibly respond to market demand via proactive investment in various products and PTs and focus on the Hyundai Dynamic Capabilities for profitability. Moreover, to become a mobility game changer, we will invest KRW 22.1 trillion. Based on our hardware development capabilities and manufacturing competitiveness, we will invest in developing architecture for more sophisticated EV software technology. In parallel, we will deploy our robotaxi projects with partners like Motional and 42dot, while investing in future businesses led by Supernal and BD to see more tangible progress. Lastly, we'll invest our money, about KRW 5.7 trillion in the Energy Mobilizer strategy to strengthen our hydrogen strategies and business capabilities, be it strategic investment and external partnerships for hydrogen value chain establishment. So we plan for this to pave the ecosystem for hydrogen. That concludes our 10-year mid- to long-term plan. Through bold, proactive and efficient investments, we'll achieve the Hyundai Way for innovation and bold steps. From the perspective of investment financing, we believe the IPO will set an example of tackling new challenges and pursuing innovation by leveraging the global capital market. Through the IPO in the global leading market, India, we seek to ramp up localization and solidify our leadership. Going forward, through such IPOs in overseas markets, we will continue pursuing innovation for not just the local subsidiary, but also HMC to meet the global standards. Let me now walk you through the progress of HMI IPO. This past June, HMI filed DRHP, a pre-offering memorandum to the SEBI and held executive-level roadshows for 60 Asian and ME institutions, 50 India institutions and 40 NA and European institutions, so 150 in total. Getting approval from the SEBI and relevant regulatory authorities, we aim to go public within 2024. We're also looking at the market situation. Thinking there could be a lot of questions regarding it, we have prepared a short video from our HMI CEO and COO. Let's have a look.

Namaste. My name is Unsoo Kim, Managing Director of Hyundai Motor India. I have spent more than 32 years at Hyundai Motor Company, including 20 years with various role on the global operations and sales. My primary role at HMI is to bring HMC's global best practices to India. It is my greatest privilege to share HMI's unique story with you. I am together with my colleague, Tarun Garg, Whole-time Director and Chief Operating Officer. Tarun will speak in more detail about our story, business and growth strategy in Indian market. Tarun?

Thank you, Unsoo. Namaste, everyone. My name is Tarun Garg, and I look after sales, marketing, service, channel, product strategy, customer relationship, brand and media management functions at HMI. I'm thrilled to speak with you about the exciting Indian auto market and Hyundai's amazing success story here.

HMI has experienced a remarkable success in the Indian market with strong [ guarantees ] and the support from Hyundai Motor Company, and we will continue to do so with our clear right to win. Let us walk you through some of the key pillars of our success.

Our product, brand, manufacturing and future strategy have always been the backbone of our growth. Let me explain them one by one to you. Product. Democratize access to innovation, Something for Everyone, from India's first [ tool board design center ] to latest premium EV IONIQ 5, HMI has consistently introduced innovative products to the market, ensuring unmatched choice for every customer preference and convenience. Brand. We are an award-winning brand with a demonstrated track record of leadership. HMI has consistently maintained its position as a top 2 player despite multiple domestic and global OEMs entering the market. Manufacturing. Flexible, localized and automated manufacturing capabilities. We have a calculated and calibrated approach towards capacity expansion to capitalize on increasing market demand while maintaining a balanced mix of domestic and export sales. We also intend to develop our Pune plant as a highly automated and state-of-the-art plant. We are future ready. We're also consistently innovating processes, digital ecosystem, customer experiences and technology, making us well equipped for future industry evolutions. Moreover, with portfolio expansion and introduction of new EV models, we will continue to lead the market trends.

Apart from our operational excellence, I would like to underscore our industry-leading profitability and strong governance. We have been consistently delivering growth at scale with industry-leading profitability and returns. We hold the #1 position in midsize SUV and the mid-high sedan segment with over 30% market share, far exceeding our peers. As of fiscal 2023, our EBITDA margin stood at 12.5%. Combined with ROCE, 28.8%, we are at the top among our Indian peers in terms of profitability and capital efficiency. Last but not the least, our exceptional performance is not a coincident. It is a result of our seasoned leadership, having representation from India and Korea. Especially, I would like to highlight our outstanding Board of Independent Directors, comprising of prominent Indian professional. This concludes our presentation, and I hope you enjoyed our story. For the first time in its history, Hyundai Motor India is opening its doors for investors to join our journey in the exciting Indian markets.

Hyundai Motor India presents you with a unique and promising opportunity to invest in a leading player with strong global talent edge in the Indian market. We shall stay committed to all the stakeholders of our company and endeavor to set new standards in the market.

Thank you for your patient hearing.

Thank you.

How did you find the video on HMI IPO? We will share further details with our investors once ready. When it's completed, I'm going to share more details. Let me now move on to the mid- to long-term financial targets to be achieved through the investment plan we set all year. As noted in our annual profitability guidance for 2024, despite the chasm in the EV curve, by increasing high-profit hybrid volumes and responding to the market more flexibly, we aim to achieve 8% to 9% of our consolidated OP margins. We'll continue our cost takeouts and improve EV profitability with improved product value. And by launching EREVs we talked about earlier, we will also enhance the profitability of both EV and EREV on par with the average, achieving 9% to 10% of our OP margins by 2027. With our own hybrid EREV and EV differentiator from other brands, we'll improve profitability during the EV chasm likely to be prolonged while improving both average profitability and OP margins of each PT. Through all this, by 2030, the profit levels of all PTs, namely ICE, hybrid EREV and EVs will be close to the average, helping us improve profitability and achieve at least 10% of OP margins. Although we can't fully communicate our profitability target per powertrain, we can see our profitability strategy in this uncertain market is to sell competitive models of each PT and reduce profitability gaps, which I'd like to highlight to our investors in terms of mid- to long-term financial targets. To be fully prepared for different PT markets overcoming the EV chasm, producing profit and preparing for the future shift to EV based on the profit will be the best strategy, I think. Next, let me talk about our program, value-up program that many investors are likely to be interested. Even before the government announced the value-up program, we have long strived to enhance our shareholders and company's value, while consistently [indiscernible] our shareholders' returns, we are now at an important time being required to shift to EV, secure profitability during the EV chasm and expand investment into the future. Going beyond the investment ramp-ups, we will proactively adopt the value-up program to further provide returns for our shareholders. In 2017, we took the first step towards more transparent and reliable investment. And until 2022, we have provided 30% to 50% of our free cash flow ex finance twice a year as dividends. Going into 2023, we have set the minimum 25% of our dividend payout ratio, paying quarterly dividends and are on track to cancel 3% of treasury shares we have for 3 years under our shareholder return policy announced. From 2025, by reflecting the confidence in our fundamental improvement and the strong commitment of our BOD and the management to shareholder return expansion, all of the concept of TSR or total shareholder return is above dividends and treasury stock buybacks and cancellations and implement a value-up program, which includes achieving ROE targets, introducing minimum dividends and setting the total amount of treasury stock buybacks. Let me elaborate on the next slide. First, starting from the annual dividend for 2024, we'll provide at least KRW 10,000 of dividends per share or DPS. Through this, we seek to return DPS stably to our investors, showing confidence in our fundamentals. Second, we will clarify the objectives for future treasury stock buybacks. As you know, we often buy our shares for employee bonuses. Going forward, all distinguished buybacks for corporate volume improvement and employee bonus separately and then disclose the objectives at the time of buyback. As for the former, you could interpret the premise is canceling the stocks we buy. Third, we plan to set a total share buyback amount of up to KRW 4 trillion that will cover common and preferred shares for the next 3 years. Considering annual TSR and ROE target we'll elaborate later, within the total scale, we'll also set the scale per year for shareholder returns. Lastly, as for the plan for utilizing the cash from HMI IPO, investors are highly interested. We will share more insights later after wrapping up the IPO. Next, let me move on to our value-up program for 2025 to 2027. We will have at least 35% of TSR or total shareholder return up 10% from the minimum 25% payout ratio announced previously. So we will include the 35% TSR, comprising total dividends and treasury stock buybacks and cancellations in our policy. Within the 35% target, we will balance between payouts and stock buybacks and cancellations so that we could improve ROE beyond just one of shareholder return and continue enhancing shareholder returns within the 35% TSR target. On the ROE improvement, we will look to increase the average ROE of 3 years to 9% to 10% and for 2025 to 2027 to 11% to 12%. Secondly, in line with the minimum KRW 10,000 dividend that I referenced earlier, from 2025, we will provide quarterly dividends of KRW 2,500, which is up 25% versus the previous KRW 2,000 per quarter. With that, we expect to pay quarterly dividends evenly throughout the year. Moreover, we will consider preferred share discounts before buying or selling treasury stocks going forward. We will reflect preferred stock discounts in make market situation, while considering our TSR scope for the year and then improve discounts under a flexible buyback and cancellation policy. Lastly, we will base our value-up program on a profit-oriented strategy, aiming to achieve at least 10% of OP margins in the mid- to long term, which will be the foundation for shareholder return expansion. Through that program, we will achieve at least 35% of TSR, 11% to 12% of average ROE for the 3 years of 2025 to 2027, and continue enhancing our corporate value and shareholders' value as well. Working on the value-up program, we did our best to reflect our shareholders' and investors' voices and thought greatly about our best approach, not just in the HMI IPO. We look forward to your continued interest and valuable feedback. That brings us to the end of the finance part. I will now turn it over to CEO, Jae Chang, for today's wrap up. Thank you for your attention.

We've walked you through our 2030 future strategy and the financial strategy we will use to achieve it. How did you find the presentations we have long worked on? HMC will not be complacent with achieving the cumulative production of 100 million, taking next steps towards another 100 million milestone going forward. As highlighted earlier, HMC will expand into various mobility sectors beyond auto manufacturing and into service areas that are linked to the businesses so that we could cement HMC's presence as a mobility game changer. We're boosting our role as an energy business and realizing a hydrogen society. We will continue to maintain the global top-tier leadership even during a period of energy transition. Through the Hyundai Way, HMC has always pioneered new territories, taking bold steps and pursuing innovation onwards. On that journey, there has always been HMC's DNA, a courageous spirit and persistence. That is our competitiveness and driving force. My belief in that is unwavering. I hope today, you have gained insights about HMC's strategic direction and future visions. We'll continue to update the progress of our mid- to long-term strategy we shared at today's Investor Day through various channels. I wish you all join the journey. HMC strives to pioneer moving forward with much interest and support. Thank you for your time.

At this time, we'd like to arrange the stage for the Q&A session. We kindly ask that you remain seated during this time. Thank you. We'd now like to invite the Hyundai executives to the stage for a Q&A session.

Good afternoon. I'm the moderator for the Q&A session today, Michael Yun. Today, I'd like to begin the Q&A session for 2024 CEO Investor Day. I'd like to start off by introducing HMC leaders. You're here with us today for the Q&A session, President and CEO, Jae Hoon Jae Chang; Chief COO, President, Jose Munoz; GSO and Head of AVP Execution Unit EVP, Heung Soo Kim; Head of Global Commercial Vehicle and Hydrogen -- excuse me, Head of Planning & Finance Division SVP, Seung Jo Lee; Head of Global Commercial Vehicle and Hydrogen Business Division EVP, Ken Ramirez; Head of Planning & Finance Division SVP, Seung Jo Lee; Head of Electrification Engine Solutions Tech Unit EVP, Chang Hwan Kim; and Head of IR, EVP, Zayong Koo. Let's jump into the Q&A session. Anyone with a question, please raise your hand. [Operator Instructions] Furthermore, this year, we are opening the floor to investors who are not able to join us in person but participating through YouTube. Viewers joining us through YouTube, please see your questions on the comments section, and we will try to answer as many questions as possible. So we'll take the question from the floor first. Any analysts or investors, if you have a question, please raise your hand.

I'm from JPMorgan, Kim Sangmyeong. Mr. CEO, you mentioned on the eco-friendly car strategy. So I have a question on that. But before that, I'm sorry. I want to say thank you because 2 years before, I got the IONIQ 5, and I'm driving it very well. So thank you for making a great car. So the eco-friendly car strategy, EV and hybrid, I think it's already proven that your competitiveness is pretty high and the demand is whether good or bad, it's there. But for EREV, it's pretty new to us. So what is the potential of the EREV market from your point of view? I mean is it just going to be a bridge, or is it going to be another pillar of demand? And from HMC's point of view, the mid- to long-term sales and profitability, what role will EREV play in that?

So eco-friendly cars, our strategy, our overall strategy is connected to the overall ecosystem of the market along with regulations. But as you are well aware, the EV chasm right now, I mean, I think there are two reasons. First is the transition. When it's pushed back, what are we going to do? And what are we going to do to bridge that gap? That is one part. And then we talked about EREV. So we gave TMED too as well. So it's really -- I think it's pretty much an opportunity for us to buy more time to be better prepared for EVs. EREV, what role does it play, you asked? EREV is very close to EV, but also overcomes and reduces the anxiety regarding EV. And I think there are a couple of reasons for this. First, charging and fueling is done at the same time, which means that range and charging inconveniences can be overcome. Second is price. The cost is mostly taken by the battery, but the battery's [ usage ] is about 1/3. So 30% only. And yes, it does have the engine, but it doesn't have a transmission. So if you look at the reference point, Japan has already gone into EREV, and EREV had already been done by GM before. But the EREV that we are currently trying to do is joining hybrid and ICU as well as EV advantages altogether, taking good points out of that. This has been raised about 1 or 2 years ago, and we have been constantly developing this. The launch is targeted for the end of 2026. And we are confident that we are now to a competitive level. And the regulation will go towards the environmentally friendly front. So I think that could also be a solution for us. It's different per region. However, in the future, while we push through with EREV, I think in the long term, it could become another pillar of demand for us. As for profitability and mid- to long-term sales, there is what we are primarily looking at, by strengthening their product quality and the quality structure, I think it really has a big potential to scale up. Hybrids, that has shown us what it can do in terms of profitability. They will ask the EV product qualities are both considered. But to secure competitiveness, we are doing the best that we can.

Thank you. Next question, please? Yes, right on the front.

This is from Samsung Securities. This is Yim Eun Young. I have 2 questions. First is on hybrid, the other is on ROE. Regarding hybrids, we do have our own in-house technology, you said, and we have shown great performance so far. In the market about hybrid, there's much interest. And as you said, because of EV chasm, hybrid demand is likely to grow more than expected. So going beyond applying our own technology to our products, do you have any plan for licensing? Or do you have anything you're now working on? Or in fact, U.S. companies or European companies, because they do not have hybrid technology, is there any possibility for collaboration? That's my question. The reason why I asked this is in the market, with your own exclusive markets, it could help improving MS, and that is to scale up the ecosystem which is a bigger premium. So my question lies in the possibility there. My second question is about ROE target, which you explained for the first time. So out of a lot of targets, do you have any priority in ROE? If it's a top priority, already your profitability is very high. Through that, ROE is not likely to go up, I think, like asset issues, for example, HME's ROE is low because finance part is a big chunk, yes. So finance chunk is large. That's why, as said, cycling rate is very low. So about the finance ownership, is there a possibility it's likely to split between HMC and Kia? Do you consider this? It would be appreciated if you answer.

Yes, there are 2 questions. The first one is about finance, and the second one is about the financial structure. On that, yes. I hope the relevant teams could get back to you on it. As you said, hybrid technology equipped like external sales or technology licensing on that, I think it's relative. For example, depending on OEM about eco-friendly cars strategy, some would have larger interest in PHEV or others in EV or hybrid. So in fact, after this EV chasm, in terms of strategy, I think there could be different opinions on that. So we can't say we do have possibility or not. Rather than that, the thing is how competitive we are. On that, yes, I think there is possibility. So on that, through various channels, we do talk about it, but still, it's difficult to fully communicate that. I think shortly, we will communicate that. Of course, hydrogen energy is also included in it. On that, like leadership cost, unit cost performance, durability, on those areas, how well are we prepared on those areas? I think that's the key going forward. As for the ROE target, there are so many things that are intertwined. But about the relationship with Kia, sorry, I can't fully communicate on it. So yes, can you please answer?

Yes. So as you asked, let me answer. For the first time, our ROE target was explained. As you know, ROE, of course, profitability is important, equally, the average asset. That's the denominator of it. So on that, yes, we are now putting our focus on that as well. So average resources capital to reduce debt, like whether it's like shareholder -- I mean, treasury stock, buyback or cancellation, we're going to consider that more than profitability. So about treasury stock, the buyback and cancellation considering that we're going to expand shareholder returns. And this is our commitment into it, as you said. So where do we pave our priority about the preferred stock discount in the market? Yes, there are lots of concerns in the market on that because we do have a lot of discounts of preferred stocks about our company. So when we cancel our treasury stocks, instead of saying where do we put our priority within the TSR, 35%, whether it's preferred stock, discount or ROE, we're going to make a decision by considering that. As our CEO said about finance, we're looking on auto manufacturing, that's a must, I think, with Kia. How in terms of like ownership, distribution? At the moment, we can't talk about it, so my apologies.

Thank you. We'll take the next question.

I am from Citi Securities. So I also have a question regarding EREV and the shareholder return policy. So I think -- I was very positive about Hyundai's approach, because even without the demand, you still push on with the market, get the feedback, and that leads to product quality, it seems. Before hybrid at that time, there was no demand, but we kept on pushing hybrid and come out with better improvements. Now we have a good hybrid. Same with fuel cell, we're taking the same approach. So I think once the fuel cell demand goes up, we'll also get benefit out of that, the efforts that we have made so far. Now regarding EREV, we haven't really given this to the market yet. So in theory, there is whatever R&D. So in the next year, the product will get better, and I'm going to be better than competitors. So in theory, that may work. However, we don't know if that's going to actually work in the market. So once the competitors go into this EREV, what unique competitiveness do we have, not just the [ testing ] base realistically. So what competitive differentiation do we have? Secondly is regarding shareholder return, the TSR, 35% you mentioned, and you said that once the IPO for HMI ends, you will give an update on the cash flow because IPO is not something that's recurred. So this TSR is 35%. After the IPO, if we are going to return with this cash flow, would that be included in the 35%? Or because it's a onetime thing, will that be not included in the 35% and calculated differently? So I think that's a very simple question.