Hanon Systems, a South Korean supplier of automotive thermal management systems, saw its operating profit plunge nearly 50 percent in the fourth quarter from a year ago due to sluggish demand for electric vehicles (EVs).

Hanon Systems said in a regulatory filing on Wednesday that it posted 53.2 billion won ($40 million) in operating profit for the fourth quarter, down 48.9 percent from the same period a year ago.

Sales stood at 2.46 trillion won, up 5 percent during the same period.

For 2024, Hanon Systems’ sales came to 9.6 trillion won, up 10.8 percent from the previous year, and operating profit stood at 277.2 billion won, up 8.1 percent.

The sharp decline in the company’s fourth-quarter operating profit from a year ago is due to the falling demand for battery-powered cars.

Industry observers noted that Hanon Systems’ active investments have led to stagnant growth. Hanon Systems has been establishing new facilities in Georgia and Tennessee in the United States, with investments amounting to $40 million and $170 million, respectively.

Furthermore, the company’s investment in research and development (R&D) surged by 14 percent last year to 443 billion won. Over the past five years, Hanon Systems has allocated a total of 1.8 trillion won towards R&D initiatives.

Rising costs, including depreciation, have added more pressure on the company’s results.

Its depreciation expenses in 2023 amounted to 598 billion won, equivalent to 2.2 times its annual operating profit.

The rise in depreciation costs is attributed to the company’s expansion, including its acquisition of a hydraulic control business from Canadian auto parts manufacturer Magna International Inc. for $1.23 billion in 2019, which alone generated annual depreciation costs of about 30 billion won per year.

Despite the challenges, Hanon Systems expects its investments in electrification to yield significant returns from the second half of this year.

With Hyundai Motor Group pushing ahead with mass production of EVs at its U.S. EV plant, Hanon Systems expects a surge in the sales of thermal management components from its new plant in Georgia.

With Hyundai Motor Group’s plans to introduce EVs equipped with next-generation platforms starting next year, Hanon Systems is poised to supply next-generation thermal management system components accordingly.

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]