Chip shortage weighing on automakers in Q2

The headquarters of Hyundai Motor and Kia, both affiliates of Hyundai Motor Group, in southern Seoul / Korea Times file

By Yi Whan-woo

Despite their strong performance in the first quarter, the country’s two leading automakers are facing potential setbacks in the second quarter amid a worsening shortage of automotive chips.

“Cutting production will be inevitable in the second quarter,” an analyst said, forecasting that production will be “severely disrupted as early as in May.”

In the first quarter, Hyundai Motor saw its operating profit increase 91.8 percent year-on-year to 1.65 trillion won ($1.47 billion), while sales increased 8.2 percent to 27.3 trillion won.

The strong performance during the first three months of this year was attributed to the rollouts of pricier vehicles, such as the Genesis GV70 SUV and the new Tucson model in the domestic market and sales bouncing back in India, Latin America and other emerging markets.

Also in the first quarter, Kia’s operating profit surged 142.2 percent to 1.76 trillion won and sales rose 6.4 percent to 16.5 trillion won.

The performances of Hyundai Motor and Kia, both affiliates of Hyundai Motor Group, came amid a global shortage of chips that disrupted the production of automobiles worldwide.

Hyundai Motor was not immune from impact and intermittently halted some of its domestic assembly lines in Ulsan in southeastern Korea, and Asan in the central part of the country in April.

Kia did the same for its factories in Gwangju and Hwaseong, Gyeonggi Province.

The automotive industry was the worst hit among business sectors that rely on chips for production, as seen by factory shutdowns at Ford, Volkswagen and Jaguar Land Rover, which also laid off workers and slashed vehicle production.

Nissan is reportedly leaving navigation systems out of cars, while Ram Trucks has stopped equipping its pickups with standard “intelligent” rearview mirrors that monitor blind spots.

Under such circumstances, Hyundai Motor and Kia are expected to face tougher conditions this month at the earliest as supplies of automotive chips worsen.

According to industry sources, the shortage may continue at least until the end of 2021.

During a conference call, April 22, Hyundai Motor Vice President Seo Kang-hyun speculated that setbacks in production could continue into the second quarter because of the prolonged shortage.

Joo Woo-jeong, chief financial officer and executive vice president of Kia, voiced a similar view in a separate conference call, also April 22, saying, “We may run out of chips in May in the worst case scenario.”

The two automakers expect delays of up to six months for their popular models, such as the Tuscon and Sorento SUVs.

To tackle the chip shortage, Hyundai Motor is reducing the production of models whose inventory levels of respective semiconductors are either insufficient or are beginning to run out.

It is also negotiating with suppliers of auto parts that contain semiconductors. Among them are Hyundai Motor Group’s auto parts affiliate, Hyundai Mobis, as well as Bosch and Continental.


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