Hyundai's Most Profitable Product, One Year After Launch

Summary

• The large 3-row SUV Hyundai Palisade had its best month ever in May 2020. It also opened up a 3:1 sales gap against its sister vehicle Kia Telluride.
• Analyzing the possible factors, it’s clear what caused it: The Hyundai Palisade is made in Korea, which was able to supply the market.
• In contrast, not only the Kia Telluride but almost all other 3-row SUVs are made in North America or Europe, which had production shut down.
• The Hyundai Palisade’s superior sales result may be confirmed by the Mazda CX-9, which is made in Japan and saw a 21% U.S. sales jump in May also.
• Being the “only game in town” with a great supply of freshly-made vehicles makes the Hyundai Palisade seem like the shrimp boat “storm survival” scene from Forrest Gump.
• Looking for a helping hand in the market? Members of Auto/Mobility Investors get exclusive ideas and guidance to navigate any climate. Get started today »

NOTE: A version of this article was first published on or about June 5, 2020, on my Seeking Alpha Marketplace site.

For the month of May 2020, the Hyundai (OTCPK:HYMLF) Palisade had its best month since it launched in the U.S. in late June 2019. It sold a whopping 7,866 units in the U.S. - simply the highest monthly number since inception.

Even though many automakers experienced a bit of a rebound in May 2020 from the generational lows of April 2019, that is not the same as the industry being back to where it was before April 2019, or even March 2019. The industry rebound is partial, not complete.

Yet, the Hyundai Palisade bucked this trend in a most dramatic way, getting back not just to where it had been in February 2020 or December 2019 - but easily trouncing every single sales number since inception, a year ago. This Superman-like performance from the Hyundai Palisade warrants an explanation.

But first, an important piece of background on the Hyundai Palisade itself.

Hyundai Palisade: A full-size upscale 3-row SUV

Hyundai had been selling a 3-row version of the Santa Fe for several years. It was not a product remotely comparable with the Palisade for primarily two reasons:

1. It was not full-size. The 3-row Santa Fe was simply not large enough, meaning that it was not a serious competitor to the Chevrolet Traverse or Honda Pilot, two of the class-leading entries in terms of interior space - for both people and their luggage.

2. It was not upscale. While the Santa Fe of 2018 was no longer bargain-basement in its last iteration, it was also not a premium product. It was still competing closer to the bottom half of the mass market.

In the “old days,” the 3-row SUVs were body-on-frame and dominated by vehicles such as Chevrolet Tahoe/Suburban and Ford Expedition, with other entries including Toyota Sequoia and Nissan Armada. Those vehicles excelled in towing heavy trailers, over 6,000 lbs.

However, the expansion of the 3-row SUV segment meant that most consumers who were new to the segment had less need for the heaviest towing. Rather, these new consumers preferred ride/steering that felt more like a car, and they also wanted better fuel consumption.

This meant that almost all the new entries in the 3-row SUV segment over the last 10-20 years have been unibody vehicles, instead of body-on-frame. Here is the list of the 3-row SUV entries for which we have reported numbers, or at least estimates, as in the case of the Tesla (TSLA) Model X. Land Rover does no longer report U.S. sales numbers for the Discovery, so it has been omitted from this table:

	US sales	2020 Q1	2019 Q1	change
1	Ford Explorer	56310	61922	-9%
2	Toyota Highlander	47890	52621	-9%
3	Chevrolet Traverse	30095	34223	-12%
4	Honda Pilot	23898	32957	-27%
5	Chevrolet Tahoe	20403	20853	-2%
6	Ford Expedition	19790	21773	-9%
7	Nissan Pathfinder	18092	17354	4%
8	Kia Sorento	18055	23619	-24%
9	Dodge Durango	17805	17019	5%
10	GMC Acadia	17686	31200	-43%
11	Hyundai Palisade	17089	0	N/A
12	Kia Telluride	16826	5395	212%
13	Subaru Ascent	15624	19073	-18%
14	Volkswagen Atlas	14278	15979	-11%
15	GMC Yukon	14066	14947	-6%
16	Chevrolet Suburban	9495	11029	-14%
17	Infiniti QX60	9061	12830	-29%
18	Acura MDX	8941	10783	-17%
19	Buick Enclave	8752	12580	-30%
20	Nissan Armada	8027	9801	-18%
21	Mazda CX-9	7219	6418	12%
22	Audi Q7	6232	7117	-12%
23	Volvo XC90	6087	6659	-9%
24	Lincoln Aviator	5666	0	N/A
25	Cadillac Escalade	5620	6819	-18%
26	Infiniti QX80	5598	5789	-3%
27	Cadillac XT6	5074	0	N/A
28	BMW X7	4582	2186	110%
29	Lincoln Navigator	3826	4469	-14%
30	Mercedes GLS	6381	6017	6%
31	Tesla Model X	2700	3850	-30%
32	Toyota Sequoia	1408	2410	-42%
	TOTAL	452576	477692	-5%
	New entrants for 2019	48035	21259
	Net of new entrants	404541	456433	-11%

Click to enlarge

Data source: Each company’s quarterly reporting, plus estimates (for Model X)

As you can see in the table above, this is a motley crew of different price points. I have also provided the additional data exclusive of five of the most recent segment entrants - Cadillac XT6, BMW X7, Kia Telluride, Hyundai Palisade and Lincoln Aviator. The segment was down 5% overall, but without the five newest entrants, it would have been down 11%. Of course, some of those who purchased the new entrants would likely have gone with the incumbents instead, had those new entrants not been available.

How the Hyundai Palisade stacks up against the other new entrants

In this table, I have lined up the Hyundai Palisade against the other most recent entrants in the unibody 3-row SUV market, for which we have had monthly sales data for a majority of the period. BMW stopped reporting monthly U.S. sales data at the beginning of 2020, and I have simply divided BMW’s Q1 result by 3, to arrive at a monthly set of numbers:

2019 US	Kia Telluride	Hyundai Palisade	Subaru Ascent	BMW X7
Jan	0	0	4981	0
Feb	315	0	6160	0
Mar	5080	0	7932	2186
Apr	5570	0	6512	2291
May	6273	0	7509	2123
Jun	5989	383	7014	2214
July	4559	4464	7296	1465
Aug	6374	5115	7319	1741
Sep	5049	3495	5319	1734
Oct	6075	4357	6091	2047
Nov	6824	5268	7545	2614
Dec	6496	5654	8280	3159
TOTAL	58604	28736	81958	21574
2020 US	Kia Telluride	Hyundai Palisade	Subaru Ascent	BMW X7
Jan	4919	5432	5606	1527
Feb	6754	6967	5982	1527
Mar	5153	3957	4036	1527
Apr	3087	3331	3954
May	2599	7866	5740

Click to enlarge

Data source: Each company’s monthly and quarterly reporting

As you can see in the table above, the Kia Telluride and Hyundai Palisade quickly reached approximately the same level of sales after mid-2019. The two variants of “the same” underlying vehicle tracked each other within approximately 1,000 or so units per month - until May 2020.

Supplemental information: Subaru Ascent in 2018

The 2019 number may make you wonder when the Subaru Ascent started U.S. sales and how quickly it reached this kind of sales level. It launched a year before the Kia and Hyundai models, so here are the 2018 numbers for the Subaru Ascent in the U.S., which launched in June 2018:

2018 US	Subaru Ascent
May	0
Jun	1897
Jul	4589
Aug	4235
Sep	5859
Oct	6008
Nov	5890
Dec	7733

Click to enlarge

Data source: Subaru U.S. Media Center

Then came May 2020: USA vs. Korea

Look at the May 2020 results: After having been approximately neck-and-neck since meaningful inception (July 2019), the Hyundai Palisade suddenly sold approximately 3x as many units in the U.S. as its sister vehicle, the Kia Telluride. How do we explain this?

The answer is most certainly very simple: The Hyundai Palisade is made in Korea, compared to the Kia Telluride which is made approximately 75 miles South-West of Atlanta, Georgia.

I have driven both cars. They are both class-leading and very similar. There is nothing in the cars themselves that somehow warrant any meaningful discrepancy in sales. And that is what we had seen in the U.S. sales numbers since inception - similar sales numbers every month, plus or minus 1,000 or so units.

Rather, the only remaining variables are:

1. Pricing. I have not seen anything meaningful in terms of pricing actions that would differentiate the Telluride from the Palisade, in May 2020.

2. Supply shortages. These two vehicles are so attractive, have been in short supply, and even sometimes sold above MSRP, that it seems obvious that a unique supply shortage for the Telluride seems to be the only obvious explanation to this divergence in May 2020 month U.S. sales numbers.

Basically, the Hyundai dealers had solid supply from Korea for the Palisade in May 2020, whereas there were no Telluride units being built by Kia in Georgia, USA. That would explain it all. And that will likely change, in the next few short months, as Kia’s U.S. production resumes and shipments reach the U.S. dealerships. But for now, that factor is stark in its impact on relative sales numbers, near-term.

Come to think of it, the Hyundai Palisade is relatively unique in one aspect

Look at the first table in this article again - the big one, with all 3-row SUVs that report U.S. sales results or for which we have good estimates. How many of those 32 nameplates in the table are not made in Europe or North America, which were shut down for much of the two previous months, manufacturing-wise? In other words, as a practical matter, which ones are made in Asia?

I see only four: Hyundai Palisade, Mazda CX-9, Infiniti QX80 and Nissan Armada. Only those four. One made in Korea, three in Japan. The rest are made in North America or Europe.

Nissan, which owns Infiniti, doesn’t report monthly U.S. sales numbers anymore - but Mazda still does: Mazda Reports May Sales Results | Inside Mazda. In May 2020, Mazda CX-9 sales were up 21%. It supports the Hyundai Palisade superior supply thesis.

Hyundai Palisade and Forrest Gump’s shrimp boat

With all but three competitors “out of production,” the right analogy for the Hyundai Palisade’s (and Mazda CX-9) May 2020 U.S. sales result, is the scene in the movie “Forrest Gump” in which they are the only shrimp boat that happens to be out to sea and becomes the only survivor of the storm, which destroyed the competition’s ability to produce. Hence, “Bubba Shrimp” was born. In May 2020, the Hyundai Palisade became the Bubba Shrimp of the U.S. 3-row SUV market.

And that’s a relatively good thing - for Hyundai.

Analyst’s Disclosure: I am/we are short TSLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

At the time of submitting this article for publication, the author was short TSLA. However, positions can change at any time. The author regularly attends press conferences, new vehicle launches and equivalent, hosted by most major automakers. Hyundai and Kia hosted product intros.