Hyundai faces production hit from April as chip shortage bites

South Korea’s Hyundai Motor is facing curbs to production from April as a chronic shortage of chips in the auto industry hits a group that has to date been one of the most resilient in the face of the crisis.

Hyundai and its affiliate Kia, which together rank as the world’s fifth-largest carmaker, have already begun cutting output of less popular models and reducing weekend work for employees at some production lines, according to people close to the situation. The group sells over 500,000 vehicles a month.

The development underscored the severity of a worldwide shortage in the semiconductors used in everything from power-steering to anti-lock brakes. The crunch, caused by disruption to supply chains and high demand for electronic devices, has forced global automakers such as Volkswagen, General Motors and Honda to cut production and is unlikely to ease until the second half of the year.

“Their inventory levels are already tight . . . The problem will start disrupting their production from April,” said a person with direct knowledge of Hyundai’s situation.

Thanks to its stockpiling of chips last year, Hyundai has so far been able to mitigate the effect of the shortages.

The group has diversified its supply chain and held more inventory after experiencing problems with car parts imported from China in early 2020 and trade tensions with Japan a year earlier. Hyundai did not cancel any chip orders when the pandemic hammered sales and forced factories to shut early last year.

“They have fared better as they built up a lot of inventories last year but things will be more difficult from next month,” said Lee Hang-koo, an adviser at Korea Automotive Technology Institute, a research firm.

Hyundai halted production of the Sonata sedan at a South Korean factory for five days this month, while weekend shifts at some of it and Kia’s production lines for less popular models were suspended. A union official said the company was trying to save chips for best-selling models.

Hyundai said these steps were taken in consideration of weak demand for some of its vehicles, and that overall production would not be immediately affected by chip shortages. “The company is closely monitoring the situation to take prompt and necessary measures to optimise production in line with supply conditions,” it said.

Hyundai receives chips from more than ten suppliers including NXP, Infineon and Renesas Electronics. Analysts expected Hyundai to be affected by a fire at a factory run by Renesas, one of the world’s largest makers of chips for the automotive industry. That could further exacerbate the deficit of chips, which was sparked by booming demand for electronic devices during coronavirus lockdowns and the impact of a US cold snap on supply chains in Texas.

“Their inventories are running out fast and will start disrupting production of midsized sedans first from next month while production of core models will likely be affected later,” said Kim Jin-woo, an analyst at Korea Investment & Securities.

Hyundai’s core models include sports utility vehicles, electric vehicles such as the Ioniq 5 and the Genesis premium sedan.

Hyundai aims to boost electric vehicle sales 60 per cent this year with new models based on its own dedicated platform.

South Korean industry groups representing car and semiconductor makers unveiled plans last week to jointly develop a domestic auto chip sector. Seoul will invest Won204.7bn ($181.4m) in research and development by the end of next year as part of its longer-term response to the shortage.