Kia Corporation (A000270) Earnings Call Transcript & Summary

Hello. This is Seong-guk Jeong, Head of Investor Relations at Kia. I will begin with business results for the fourth quarter of fiscal year 2025. I'll commence with the sales summary, followed by the consolidated income statement, revenue and earnings analysis, the consolidated balance sheet and finally, Kia's business plan for 2026. First, we will begin with the global retail sales performance. In Q4 2025, global industry demand declined by 1.6% year-on-year due to mounting pressure on consumer purchasing power in the U.S. market following the expiration of IRA subsidies at the end of September and rising vehicle prices and budget constraints on the trade-in policy in certain local regions in China. Kia's global retail sales witnessed a 1.6% growth year-over-year, led by higher sales centered around the Sportage HEV and Carnival HEV in the U.S. and increased sales led by the Sonet in India following the goods and services tax rate cut lifting our global market share by 0.1 percentage point to 3.3%. By market, domestic sales dropped by 5.9% year-over-year, reflecting deferred year-end demand due to the extension of the individual consumption tax cuts. In the U.S. market, in response to changing market conditions such as tariffs, the expiration of EV subsidies and easing environmental regulations, we leveraged our flexible production system and focused sales efforts more on ICE and HEV models than on EVs. As a result, despite an overall decline in market demand, our sales increased by 1.7% year-on-year, resulting in our market share expanding to 5.3%. In the Western European market, despite continued strong sales of the EV 3, fourth quarter sales were somewhat subdued due to the impact of the discontinuation of the Ceed and the aging of the existing ICE lineup, including the Sportage. However, we expect sales to recover in 2026, driven by the full-scale contribution of newly launched models such as the EV4 and EV5 released in the fourth quarter. In the Indian market, the September 22 goods and services tax cut -- rate cuts drove a sharp surge in A segment SUV demand. Benefiting from these tax incentives, our Sonet and Syros lifted sales 41% year-on-year and took our market share to 5.7%. Major emerging markets such as Central and South America and CIS markets recorded sales growth driven by increased supply from expanded export volumes from Chinese plants by the start of mass production at the Qazaqstan plant in October and the increased CKD volumes in Uzbekistan. Next is our electrified vehicle sales summary. In Q4 2025, electrified vehicle sales increased by 13.2% year-over-year to 186,000 units, driven by Kia's powertrain strategies aligned with shifting demand in each market amid strong demand for HEVs in the U.S. market and EVs in Western Europe. As a result, the share of electrified vehicles in our global sales expanded by 2.4 percentage points from 21.5% in Q4 2024 to 23.9% in Q4 2025. And the sales mix for HEVs and EVs accounted for 15.6% and 7%, respectively. HEV models continue to lead the growth of our electrified vehicle sales driven by strong demand in the U.S. with global sales of the Sportage HEV and Carnival HEV increasing by approximately 16,000 units and 5,000 units, respectively. Consequently, Kia's market share in the U.S. HEV segment nearly doubled, expanding from 4.2% on a full year basis in 2024 to 8.2% in the fourth quarter of 2025. In the EV segment, continued strong sales in Western Europe, together with the introduction of the EV4 and EV5 in the fourth quarter contributed to a 0.3 percentage point increase in Kia's EV market share in Europe from 3.2% for full year 2024 to 3.5% as of Q4 2025. The following is the regional wholesale performance. In Q4 2025, Kia's wholesales decreased to 0.9% year-over-year to 763,000 units. Looking at the key regions, North America saw a 2.5% growth year-on-year to 258,000 units owing to expanded shipments of the Carnival and Sportage HEV based on robust HEV-led demand and stronger SUV-focused wholesale volume. In Europe, despite continued strong sales of the EV3, sales volume declined by 10.2% year-over-year to 119,000 units due to the discontinuation of the Ceed production adjustments for the new EV2 launch at our Slovakia plant and heightened competition. In India, sales grew 40.9% year-on-year to 74,000 units, driven by the impact of the GST rate cuts and strong demand for the Sonet, which benefited from such. Finally, in the rest of the world, such as the CIS region, sales increased nearly 30% year-on-year, owing to increased sales of the Sportage produced at the Qazaqstan plant and Sonet produced at the Uzbekistan plant. Next is the consolidated income statement. In Q4 2025, revenue rose 3.5% year-on-year to KRW 28.088 trillion as higher ASP resulting from continued price effects and favorable FX effects outweighed the decline in consolidated sales volume. Operating profit recorded KRW 1.843 trillion, down 32.2% year-on-year as the benefit from the retroactive application of the 15% Korea U.S. tariff effective November 1 was offset by the temporary burden of a 25% tariff on U.S. inventories through October and November and higher incentives in overseas markets. Pretax profit stood at KRW 2.111 trillion and net profit at KRW 1.471 trillion, down 13.6% and 15.5% year-on-year, respectively. Next, operating profit analysis. Breaking down the evolution of operating profit by sector. First, the impact of U.S. tariffs continued into the fourth quarter, reducing profit by KRW 1.022 trillion. Increased spending for competition in the North American and European markets resulted in a KRW 342 billion Y-o-Y increase in consolidated incentives, reducing earnings. In addition, vehicle sales declined by more than 8,000 units Y-o-Y, resulting in a KRW 132 billion decrease in earnings. However, the PP mix turned positive in the fourth quarter after having been a negative factor until the third quarter, reflecting an improvement in our fundamentals. Even amid a challenging business environment, Kia improved profit by KRW 90 billion through price effect driven by enhanced product value and efforts to mitigate the impact of U.S. tariffs resulted in approximately KRW 108 billion in cost savings. Lastly, the continued favorable impact of the Korean won, USD exchange rate increased earnings by KRW 424 billion. And as a result, operating profit for the fourth quarter of 2025 amounted to KRW 1.843 trillion, down KRW 874 billion Y-o-Y. Next, revenue analysis. First, based on the regional sales share data on the left, consolidated revenue increased by 3.5% Y-o-Y. In North America, revenue increased on the back of higher wholesale volumes and higher ASP centered on HEVs and SUVs, lifting its share by 1.3 percentage points from 43.3% in Q4 last year to 44.6% in Q4 2025. In terms of domestic sales, despite a 2.1% increase in ASP, revenue declined by nearly 6%, leading to a 1.2 percentage point decrease in its share Y-o-Y to 17.6%. Despite a decline in sales compared to the fourth quarter of last year, Europe's revenue share remained at a similar level to the previous year, supported by a relatively higher share of EV sales and a favorable EUR 1 exchange rate. India's revenue share expanded to approximately 5%, driven by sales growth of over 40%. Now moving on to the ASP improvements on the right. The global ASP for Q4 2025 increased by 4.7% Y-o-Y to KRW 39.1 million, driven by the expanded HEV EV sales centered on advanced markets in the U.S. and Europe, along with positive exchange rate effects. Domestic ASP also increased by 2.1% Y-o-Y to KRW 35.1 million, continuing its growth trend. Next, cost of sales and SG&A. Despite revenue expansion driven by favorable foreign exchange rate effects, the cost of sales ratio for Q4 2025 rose 2.9 percentage point Y-o-Y to 81.7% due to the previously mentioned impact of U.S. tariffs amounting to KRW 1.022 trillion. Without the tariff impact, however, the Q4 cost of sales ratio is estimated to have slightly improved Y-o-Y to 78.1%. The SG&A ratio for Q4 rose 0.6 percentage point Y-o-Y to 11.8%, mainly driven by increased volatility in the Korean won, U.S. dollar exchange rate at quarter end and the reflection of quality costs, which led to a 0.8 percentage point Y-o-Y increase in the sales warranty expense ratio. Next, nonoperating income. First, equity method results posted a loss of KRW 72 billion in the fourth quarter of 2025, following a loss in the same period last year. However, results improved by KRW 79 billion Y-o-Y, driven by absence of one-off impairment losses recorded in the fourth quarter of last year and improved performances at affiliates. Financial and other nonoperating income improved by KRW 462 billion Y-o-Y to KRW 341 billion, reflecting FX gains driven by quarter end exchange rate movements as well as improved gains on disposals of tangible assets. As a result, net nonoperating income expense for Q4 2025 increased by KRW 541 billion Y-o-Y to KRW 268 billion. Next, the balance sheet. As of year-end 2025, total assets amounted to KRW 98.979 trillion, an increase of KRW 6.223 trillion compared to year-end 2024. The key drivers behind the asset expansion were increases in tangible and intangible assets, inventory assets and equity method investments. Total liabilities at year-end 2025 amounted to KRW 37.789 trillion, an increase of KRW 879 billion compared to the year-end of the previous year. Despite a reduction in borrowings of KRW 890.2 billion, total liabilities increased compared to year-end 2024, mainly due to increases in accounts payable and warranty provision. Total equity stood at KRW 61.19 trillion, an increase of KRW 5.35 trillion compared to the year-end of the previous year, and the debt ratio improved by 4.3 percentage point Y-o-Y to 61.8%. Lastly, our business plan for 2026. For 2026, Kia targets wholesale sales of 3.35 million units, representing an increase of 214,000 units Y-o-Y or 6.8% growth. Retail sales are also expected to grow 6.8% Y-o-Y in line with wholesale growth. In the U.S. We plan to drive sales growth centered on SUV and HEV supported by full model changes of our core model, the Telluride and Seltos ICE, along with the addition of new HUV variants for both models. In Europe, with the early year launch of the EV2, we will complete our mass EV full lineup spanning EV3, EV4 and EV5 and focus on a full recovery in sales, further strengthening our EV leadership. In India, we will continue to strengthen our market leadership by targeting premium SUV customers through the new Seltos. For 2026, Kia sales revenue target is KRW 122.3 trillion, representing a 7.2% growth Y-o-Y. Operating profit is targeted at KRW 10.2 trillion, an increase of KRW 1.1 trillion Y-o-Y with an operating profit margin of 8.3%. In 2026, despite the application of a 15% U.S. tariff and an expected increase in incentives amid the intensifying competition, Kia will pursue robust top line growth driven by ambitious volume growth targets and ASP improvements supported by increased HEV and EV sales while continuing to enhance profitability through multifaceted cost reduction efforts. More details on our 2026 business plan will be provided at the CEO Investor Day scheduled for early April. This concludes the earnings results for the fourth quarter of fiscal year 2025. Thank you.

Next, CFO, Senior Vice President, Seung Jun Kim, will deliver a review on Kia's earnings for the fourth quarter of 2025 and business outlook for 2026.

Hello. I'm Kim Seung Jun from Kia. First of all, we'll talk about the fourth quarter and year, the performance and also the business plan for 2026 and also the shareholder returns. We will divide those 3 buckets and explain each and every one of them. First, about the fourth quarter and 2025 performance. Kia in Q3, as we have explained during the performance results, we have went on a bottoming out, but now we are on a recovery stage. However, as Head of IR has said, the tariff being impacted -- affected in 15% was November 1. But due to the inventory in October and November, it was after December that the 15% was clearly shown. And -- so in Q4, what we -- compared to what we have thought, the reason why we didn't go as much as we expected was because the Q4 sales, as we have explained in domestic and Europe compared to the year before, we were a little bit low, but in domestic due to the individual consumption tax rate extension, there was an impact. And also there was an increase -- intensified competition of our competitors and the incentive strategy impacted in Kia also. And for EV transition, we have the later full EV launch and that impact did not show in the fourth quarter of 2025. And that impact will show in 2026. And that's why we have reflected it in our business plan for 2026. So our trial was in Q3 2025, but we have turned around our recovery stage for Q4 2025. And in 2026, we expect our earnings to normalize. I don't know if normalizes will turn to you, but from Q1 2026, we believe that we'll be able to show better performance regarding this. In relation to our business plan for 2026, we will explain. Our 2026 business plan, we do not think that the market conditions will be much different from 2025. However, Kia believes that there will be about 6.8% or up to 7% growth. We can divide it into Europe and the United States. In the United States, first time in 7 years, the Telluride model has been newly released, and we have competitiveness in that model. And also, there's a hybrid model that we have scheduled for release. Therefore, we believe that it will play a role as a cash cow. And from fourth quarter of 2025, Carnival hybrid is also increasing in our supply and also it will impact in our sales globally in 2026. And also, we had the Seltos that released recently, not only in the U.S., but for Seltos domestically and in India and all over the world, from a profitability perspective is a big contributor to Kia's growth. However, in Europe in 2025, we were lacking in some extent. But in 2026 compared to 2025, we believe that we'll be able to achieve 10% growth. And the reason is because we did launch the EVs in 2025, but they were usually at the end of the year. And in 2026, we believe that we can sell in full. And at the beginning of the year, we have EV2, which is a low-cost model, that will -- is to be released. Therefore, according to the EV transition period, we will be able to supply accordingly. And also for the Ceed, the ICE has been discontinued. It was produced in -- so as the K4 that was produced in Mexico was being sold in Europe, the ICE model and EV model balance was being made and we believe that, that will be able to drive growth. According to this, the electrified vehicle EV new cars increasing will be able to impact our revenue growth in 2026. Also, the earnings compared to the year before, we will be able to see a significant growth. It may seem aggressive growth or conservative growth, but we believe that in sales, we will be able to achieve profitability growth. And as I said, the Telluride and the cash cow models have been released. Backed by these models, we will continue on enhancing our profit -- product value and also our financial stability will also be increased. We will reduce our debt and also have our cash increase. That will be our 2026 business plan. And also, I want to move on to our shareholder return policy. On 2025, we mentioned that we would achieve TSR of 35% for 3 consecutive years. Last year, there was a tariff impact partially. But our fundamental policy towards our shareholders and our promises to our shareholders should be met regardless of these external headwinds. Therefore, we are going to keep to our original promise that we have already made. Whatever the situation may be in Kia, we are going to show increasing sales. And we believe that, that is right since our shareholders have shared our burden and supported us. Therefore, we will increase the dividend per share from KRW 6,500 to KRW 6,800. And therefore, the TSR is going to be kept at 35%. And through our efforts, shareholders and investors may see -- may be able to see Kia as a credible company. Once again, I'd like to stress that we are going to keep to our promise -- and if our cash increases, then we will make reinvestments internally, and we will also provide some of that free cash balance to our shareholders as well. We will make reasonable decisions. And next, we will take the -- begin the Q&A session. Please follow the instructions from the operator.

[Operator Instructions] The first question will be provided by Eun Young Yim from Samsung Securities.

I am Yim Eun Young from Samsung Securities. I have 2 questions. The first question is on the tariffs. You have explained about the tariff. But in the morning, there was the Hyundai Mobis earnings results that was announced to the public, and they have said that all of the tariff impact in the manufacturing parts have all been recovered. And so when you have announced your impact of the tariffs, you included the numbers of giving back the cost of the parts included in your statistics? And regarding the 3.75%, does it also include the drawbacks of the parts in the tariffs? The second question is regarding the CapEx. HMC has announced about the investments in robotics and also fiscal AI. And although Kia's cash flow is very good at the moment, they cannot help with the investment with this. And so this year, what are your plans for CapEx? And also, will there need to be additional financing for this?

First, regarding the tariffs, I think that the cash basis and the accrual basis will be different. But if we look at the tariffs that are impacting the OEMs and the parts, it can be divided into 3 parts. First is the OEM that pays for the tariffs when they export to the country. And also second is for the parts tariff, and this could be divided into 2 parts as well for the key parts as well as the general parts tariffs. Regarding the MSRP, we have the 3.75% referral refund provision that we have, but that is already been burdened, and so it does not reflect additionally into our income statement. And in regards to our parts and OEMs, so there will be impacts of only the general parts that have not been refunded yet. And so the 2 that it will be actually be burdened by the OEMs with the OEMs exports to the United States and also the general parts that will be -- also be burdened. And also for the general parts, there are exports that we do directly ourselves, which we take the burden of and also there's the exports that are done by the vendors. And -- but it has also been 100% reflected in our pricing. Therefore, we do not believe that there will be any changes in the acknowledgment in our accounting unless there is any changes to the tariff amount. And if we consider the 2025 tariff total burden, it was KRW 2.9 trillion. And also, if we consider in mind that the U.S. volumes will go up this year, we believe that there will be a full year reflection of the tariffs that has been burdened in May, which is about KRW 3.5 trillion. And therefore, 80% of the tariff is burden by OEMs and 20% will be the general parts tariffs that will be refunded. And because it has been 100% being reflected, we do not think that there will be any confusion going forward. Regards to the exports from Mexico and the tariffs from Mexico, we believe that we have to wait until Q1 in order to see how much refunds will need to be done. And so after the Q1 is over, we'll be able to know a little bit better. Second question regarding CapEx, adjustments will be needed. But based on rolling basis in the mid- to long-term calculation based on the mid- to long term in 2025. In 2025, we have our calculation set as KRW 5.7 trillion for 2026, KRW 5.5 trillion and 2025 -- 2027, KRW 5 trillion. And based on our top line growth, we have 2025 as 5.1%, 2026, 2.4% and also 2027, 3.5%. Although our group has announced our plans to invest in autonomous vehicles and also AI, additional investments may be needed. However, even if they are reflected, we believe that we have the fundamentals, very solid in place that we are able to take care of that CapEx increase. And regarding the cash flow as well, we -- as our Senior Vice President has announced, we have increased our generational core, generational business capabilities. Therefore, we believe that we will be able to go to the extent that we can take care of the increase and the CapEx.

The following question will be presented by Yong Kwan Moon from Shinyoung Securities.

I am Moon Yong Kwan from Shinyoung Securities. So I'd like to, first of all, ask about the 2026 sales target. So it seems like there's a launch of EV and Seltos. And in regions like Europe, you're targeting for 11%. In APAC, you're targeting for 13% sales growth, and that is seemingly above the industry average. So you're targeting to go above the industry. However, when we look at these regions, there has been very aggressive entrance of the Chinese OEMs recently. And in the fourth quarter, I'd also like to ask about how much the incentives have played a factor because other than the U.S., it's very difficult to track the incentive status going on. So I'd like to ask how the fourth quarter incentive has differentiated from the year before on the Y-o-Y basis other than the U.S. And also, I'd like to also -- so my 2 questions were regarding the 2026 sales target as well as the incentives and also how much the incentives will be impacting the sales target of 2026.

Thank you very much. Regarding the question on the Chinese OEMs, yes, you have seen correctly, the competition is intensifying from Chinese OEMs and the price difference between us and Chinese OEMs is quite large. However, we are not thinking of offsetting all of their impact through giving more incentives and through price transfers. Compared to 2024 and 2025 to put it roughly, per unit, the incentive increased by 10%, which was around KRW 200,000. And in 2026, when we set the business plan, we also set it as a similar rate, the incentive increased at a similar rate to last year. And in Europe, you also have to think about the fact that there's not only Chinese OEMs in the competition. There is the European OEMs that are very aggressive in their sales promotion. Therefore, we need to deal with the European OEMs as well in that market. And to increase our sales, yes, we have to increase our incentive ratio. However, when thinking about the direct impact that incentives has had on the actual sales unit, it's very difficult to say, especially when we think about countries like the U.S. and the regions like Europe and India, especially for India, there's not been that big of a change in incentives, and we've tried to rather take the new model launch effect with the Seltos. We have targeted aggressive sales volume increase based on that rather than incentives. In the Europe, yes, incentives have played a big part in the volume increase of around more than 10%. So you've asked regarding the different situations of different regions when we look at the 2026 BP. Now I want to mention that the market environment is very different region by region. So if you look at the very big numbers, then yes, we will see that the numbers volume will actually increase from 3.14 million to 3.15 million. However, we have to see that the characteristics are different by emerging markets and advanced markets. The share would be emerging markets half and advanced markets half. And the situation is especially very different from Europe and the U.S. When we first look at the U.S., the EV subsidy has ended and the regulatory framework has also changed very much. Therefore, we will be focusing on increasing the sales of ICE and HEVs more and decreasing the sales of -- and decreasing the ratio of EVs. So when we look at the very big picture in terms of our products, we will be focusing on increasing the Telluride from 120,000 to 180,000, which is more than -- which is around 50% growth. And also, we will have a new lineup of the Seltos. And also, we will be targeting for a Y-o-Y 90% increase when it comes to HEVs in the U.S. So there will be an increase of 120,000 going to 250,000, that is the business plan. So basically, in the U.S., in a nutshell, we will be focusing on our new car as well as the transition to hybrid centered sales. Now in the EU, of course, EVs are going to take a center, front and center. In the fourth quarter, we have therefore the very first time, set the milestone of EV sales outpacing that of gasoline vehicle sales, we believe that this trend will continue on forward. In the EU, the success of EV lies in how we can really take the lost volume of ICEs and we transition that to the EV portfolio, that will be the most important factor for us to gain the upper hand. In 2024, we did post a negative number. However, that was because we were not able to transition the demand from ICE to EVs fully. But now that we have the full lineup of EV2 to EV5, and we also have the PV 5 as well as Seltos, we believe that in Europe, we do have the strength to now transition away from ICE and take all of that demand into EVs. So for Europe, the plan is 11%. But the thing is the numbers may be similar, but the market characteristics is very different when we look at the U.S. and Europe. And in EU, we are -- and in Europe, we are targeting for 80% growth rate in terms of EVs. Now in emerging markets, the competition is very high from Chinese OEMs. And in EV segment, we have the Sonet and the Seltos, and these are very strong SUV segments that we can lead with. And also when it comes to the pricing, we are going to try to expand the production in the Chinese plant to reduce the cost of sales. And also, we will be making use of the regional hubs in Asia Pacific like Malaysia and also increasing the ratio of CKVs. Therefore, we will be using our product lineup as well as the regional hubs to target that area and to reduce cost of sales specifically. And we're especially thinking of going more aggressive in Asia Pacific in terms of our expansion. And in CIS, we also have the production base of Qazaqstan and Uzbekistan. And therefore, when we look at the numbers in the U.S., it 4% to 5%, EU, it's more than 10%. And for other emerging markets, we believe that we will be able to achieve a high single-digit growth rate.

The following question will be presented by Jinsuk Kim from Mirae Securities.

I am Jinsuk Kim from Mirae Securities. I have 2 questions. The first question is regarding the earnings from the United States region. And the United States region earnings has a big impact on our performance. And this year, you probably have a scheduled increase for sales. So I would like to know the details about the pricing and the incentives and the tariff impact on the earnings and compared to the year before Y-o-Y, how will it be? If we look at the tariff itself for 8 months, there was the implementation of the 25% tariffs and for 12 months, there will probably be the impact of 15% tariffs. But will the cost of tariffs go down or be maintained or go up Y-o-Y? The second question is regarding the robotics and the autonomous vehicle-related features that HMC Group has announced recently. There's a lot of people that are expecting a lot in regards to the autonomous vehicle technology and robotics in the HMC Group. And so there will also be the demos and a lot of test cars that will be in place and a lot of events. So are there any events that you can explain at the moment to the public? And also, what is the difference between HMC and Kia's perspective on these features and robotics? Although this is the earnings results announcement call, regarding the CES, recently, there was events that happened. And so we would like to know if there's any other events that will be happening soon?

Regards to the earnings in the United States region, in Kia, the NA region holds a big part in our earnings in 2025 as well. But in 2026, we expect the same to be true. And the basis for this is because of the sales volume increase, but also we have our Telluride, which is a high-profit model that will be released in the United States, which we have the volume set as reaching from 120,000 to increase to 180,000. And it's not regarding just the NA region, but Kia in our good times had reflected the increase in the cost of sales reflected in the pricing. But with the intensified competition with other OEMs like Chinese OEMs, we cannot reflect all of our costs into our pricing. Therefore, we are putting in a lot of efforts to secure our cost competitiveness. And I have emphasized this several times, but Kia has put in a lot of efforts with a desperate heart in order to reduce our fixed costs as well as reduce our cost in general. So it's not just the NA region, but Kia as a total in order to secure our profitability and maintain our profitability have done our best in order to reduce our cost and fixed costs. So we believe that the earnings in NA region will be maintained. After CES, we take turns doing the announcement and it was HMC's announcement this time. And -- but in the group perspective, autonomous vehicle technology and robotics is a strategic asset and a future industry. And it is a common investment that we are putting in together as well as a common development and a common project that we are engaging in together. So through the robotics lab and diverse arenas, it's like the DGMP is our common asset. We have the autonomous vehicle technology as well as robotics as our common asset as well. And regarding the CES, we have been able to show our big picture in our robotics. And at the end of the year, we have the demonstration in place and also, we are going towards the mass production POCs. But -- and also the industrial mass reduction as well. But rather than showing this and our plans on a one-off event basis, I think that there will be a better place for us to show you the progress on the road map through a structured manner. And so if we have plans in order to have this event in place after our preparation, we will be able to let you know. Also, it's the same for autonomous vehicle technology. Our big plan is to have the HEV launch in 2027 and also have the L2++ stage of autonomous vehicle technology as an initial launch and also have our L4 autonomous vehicle technology developed with Motional. And this year, we have our launching as well. Therefore, after our preparation is over, I think that we are going to go to the stage of mass production development and our leadership is looking into ways to accelerate this, and we have assignment in place for this as well. So we will be able to have a structured event where we can regularly tell our audiences about our plans and our big picture.

The following question will be presented by Gwi-yeon Kim from Daishin Securities.

I am from Gwi-yeon Kim from Daishin Securities. I have 2 questions for you. The first is regarding the recent DRAM price increases. I'm talking about semiconductors. Is this going to impact our cost of sales? It seems like there's a lot of talk about this overseas. So I'm wondering if there's been any long-term contracts in place regarding the DRAMs and how the volume is going to be planned for the future. Second is regarding the conversion cost. In the fourth quarter, it seemed to go up. Is there a special reason for this?

So regarding the very first question, the semiconductors that go into automobiles are different from DRAM. So we are not impacted right now. It's difficult to say if we'll be impacted, if our cost of sales will be impacted going forward. However, what's more important for us is basically the price of platinum and rhodium as well as palladium that goes up. That is what impacts us even more. We have experienced the semiconductor shortage in the past, and that was a very difficult time for us, so of course, we do have long-term contracts in place to prepare ourselves. So that is not a big risk that we think. And regarding the increase in warranty provision, there were a lot of new model launches in 2025. And therefore, when there's a new model launch in the beginning, we need a bigger provision. And also, we saw increased sales in EVs and EVs do need more warranty provision than ICE. So that is why there was a Y-o-Y increase. But when we look at the comparison with the third quarter, you can see that the ratio has actually gone down. So I want to say that this difference in the ratio is because of the new model launches as well as just organic differences in the cycle. And also, I would like to add on about the question regarding semiconductors. When we actually signed the contracts regarding semiconductor procurement, we actually do individual contracts for different models. So it is not like for semiconductors, we have a yearly procurement repricing contract altogether. Therefore, of course, these factors are forecasted, and that is included in our price -- in our contracts.

The following question will be presented by Yoonchul Shin from Kiwoom Securities.

I am from Shin Yoonchul from Kiwoom Securities. I have a question on the net cash, about KRW 19.6 trillion has been announced, but you have also announced that in 2026 with the cash generation capabilities that you have from Kia side, you'll be able to have more cash accumulated. But I believe that there's already enough that is accumulated from Kia's side, and I have more questions about how it will be used effectively. And if we compare it with HMC as well, it looks like you have a lot of net cash on Kia's side. Therefore, will there be any other plans for the usage of the net cash, for example, like the increase in TSR. If we look at the earnings results that call that was done by Kia recently, now they announced that out of the KRW 10 billion, about KRW 6 billion will be done as a share buyback, which is over 50% of the TSR. Therefore, if we look at the EV transition that GM is going towards, there will be a lot of costs that will be incurred from GM side. But even with that in mind, they are increasing their shareholder returns. Therefore, if we look at Kia, the TSR being 35%, I believe, is a little bit lower compared to the net cash that Kia has. Although you have talked about the common investment that will be done on autonomous vehicles and robotics, I still think that TSR could be done on an individual level separate from the other groups in HMG. Therefore, are there any other plans to use your net cash.

I believe that the answer is in the question itself. And so to summarize the comments, I think that although the net cash that we hold on Kia is KRW 20 trillion, the reason why it has gone up is that it has been to this level in the recent 5 to 6 years. And compared to the scale of our company, the KRW 20 trillion net cash that we have isn't that excessive if we compare the net cash to our peer groups, as you're well aware. And the reason why I said that the answer is in the question is because of the room of the increase in the TSR. Of course, we are reviewing this. But in the situation that there may be another variables that may be in place or unexpected situations that may arise, we are holding the net cash in Kia currently. But as I said before, if the performance in our earnings go up and our cash goes up accordingly as well, we cannot help but think about the increase in our TSR.

This concludes the fiscal year 2025 fourth quarter earnings results by Kia. If you have any further questions, please contact the Kia IR team directly. Thank you for your time and participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]