Kia's third-quarter operating profit rose 24.3% from a year earlier to 1.82 trillion won, the South Korean automaker said Friday, as a lower U.S. tariff on Korean cars and strong hybrid sales offset rising costs. Revenue climbed 10.1% to 31.6 trillion won, a record for any third quarter, according to The Korea Herald.

The headline gain flatters the picture. Most of it reflects a weak base: a year earlier, Kia absorbed the full 25% U.S. levy, which has since been cut to 15%. Net profit, including non-controlling interests, dropped 9.6% to 1.29 trillion won, according to Kia's results release. For investors in Asia who own Kia as a play on hybrids and a weaker won, the quarter showed that tariff relief alone is not restoring margins.

Tariff relief masks a softer core

Kia's U.S. tariff expenses fell to 701 billion won in the quarter from 1.23 trillion won a year earlier, the Korea Herald reported. Stripping out tariffs, operating profit slipped to 2.52 trillion won from 2.7 trillion won.

The operating margin improved 0.7 percentage point to 5.8%. That is well below the 8.3% full-year margin Kia set at the start of the year, and the company indicated it will likely miss that goal, while keeping its target of 3.35 million vehicle sales for 2026, according to the Herald.

Costs ate into the gains. Higher raw material prices and the Middle East conflict cut about 570 billion won from operating profit compared with a year earlier, The Korea Times reported. Bigger incentives and price cuts, mainly in Europe and Korea, also weighed.

Kim Seung-jun, head of Kia's finance and accounting division, told analysts on the earnings call that a sharp profit rebound in the fourth quarter would be hard to achieve. He named the war in the Middle East as the key variable and said a firm assessment was difficult because the conflict could end, The Korea Times reported.

Kia's hybrid push in the U.S. and EVs in Europe

Volume was the bright spot. Global vehicle sales rose 7.9% to 847,355 units, Kia said, and its global retail market share reached a record 4%, or 5% excluding China.

In the United States, retail sales rose 7.8% to about 234,000 vehicles, lifting Kia's market share to a quarterly record of 5.8%. Hybrid sales there jumped 118% to 69,000 units, far outpacing 27% growth in the overall U.S. hybrid market, and Kia's share of that segment reached 10.6%, its first double-digit quarterly share since it entered the segment in 2011, according to The Korea Times. Kia credited the new Telluride and stronger hybrid sales across its main SUV models.

Hybrids, plug-in hybrids and battery-electric cars together rose 47% to 300,000 units, or 36.2% of global retail sales, Kia said.

Europe is a different bet. Sales in Western Europe rose 16.9% to 145,000 vehicles, and electric models made up 43.2% of that, up from 19.2% a year earlier. India grew fastest, with sales up 38.5% to 89,000 units, the Korea Times said.

Kim defended the EV spending despite thinner margins. "Surviving in Europe without strong EV sales is simply impossible," he said, as quoted by the Korea Herald. Kia aims to make its EVs as profitable as its hybrids within two to three years by cutting costs in batteries, motors and power electronics, and is considering moving EV production for Europe to its plant in Slovakia while shipping combustion-engine models from Korea, the Herald reported.

What it means for Korean auto stocks

Kia credited favorable exchange rates, alongside the tariff cut and higher volumes, for supporting profit, The Korea Times reported. Korea's broader growth has also been carried by exports, as the third-quarter GDP figures showed. A firmer won would remove one of those supports.

For the fourth quarter, Kia said it will push higher-margin hybrids in Korea and the U.S. and strengthen its electric lineup in Europe, according to The Korea Times. The gap to close is large: a 5.8% margin last quarter against a full-year goal of 8.3%.