Chip inventory is tight, Hyundai Motor starts to face production disruption in April

According to foreign media reports, South Korea’s Hyundai Motors will face production interruptions starting in April, as the shortage of chips will further impact the auto industry that was originally plagued by the epidemic.

Hyundai Motor and its subsidiary Kia Motors are the world’s fifth largest automaker, with monthly sales of more than 500,000 vehicles. The company has already begun to cut the production of some non-standard models and reduce the weekend working hours of workers in some production workshops, which is consistent with the practice of some other car companies.

This incident highlighted that from power steering to anti-lock brake systems, the semiconductor components required for these products are in short supply. Currently, the chip shortage crisis has caused global automakers such as Volkswagen and Honda to cut production, and this situation is unlikely to ease before the second half of this year.

Thanks to the stockpiling of chips last year, Hyundai Motor has so far avoided the impact of chip shortages. However, a person familiar with Hyundai Motor’s current status said, “The company’s inventory is already very tight, and a shortage of chips is expected to disrupt their production from April.”

After experiencing the issue of the supply of auto parts imported from China in early 2020, Hyundai Motor Group has diversified its supply chain and held additional inventory. In addition, when the pandemic last year hit car sales and forced auto factories to close, Hyundai Motor did not cancel any chip orders.

Lee Grasp-koo, consultant of the Korea Automotive Expertise Institute, mentioned that due to the accumulation of large inventory in the previous year, Hyundai Motor performed relatively better in dealing with chip shortages, but from Starting next month, the company may also face difficulties.

Hyundai Motor suspended the production of Sonata sedan at a South Korean factory this month for 5 days; at the same time, Hyundai and Kia also temporarily cancelled some weekend shifts. A union official said that Hyundai Motor is trying to prioritize chips for best-selling models.

Hyundai said that it took these measures because it took into account the weak demand for some of the company's cars, and the general production will not be immediately affected by chip shortages. The company is paying close attention to developments and taking immediate and mandatory measures to optimize production when conditions are met.

Hyundai has more than 10 chip suppliers, including NXP, Infineon and Renesas Electronics. Analysts predict that Hyundai will also be affected by a fire in a factory in Renesas.

Korea Funding u0026 Securities analyst Kim Jin-woo pointed out that South Korea’s Hyundai Motor’s chip inventory is rapidly declining and may first affect the production of mid-size cars from next month. It seems that the production of core models will also be affected later. Hyundai's core models include SUVs and electric vehicles, such as the Ioniq 5 and Genises high-end sedan.

The Korean trade team representing the automotive industry and semiconductor manufacturers announced a plan to jointly develop the domestic chip automotive industry. Seoul will invest 204.7 billion won ($181.4 million) as part of its long-term measures to deal with chip shortages.