Hyundai profits surge three-fold on pandemic rebound

Hyundai Motor reported a near three-fold jump in first-quarter net profit as demand for sports utility vehicles and its premium cars rebounded strongly from the coronavirus pandemic.

However, analysts cautioned on Thursday that a worldwide chip shortage could derail the sales recovery at the South Korean company.

Global vehicle demand began to pick up in the second half of last year as countries reopened their economies, while consumers continued to shun public transport and shared rides out of fear of Covid-19.

Between January and March, Hyundai was able to avoid the production halts that forced many other big carmakers to cut output due to its ample supply of chips.

Hyundai could face more difficulties in securing chips as there is no major auto chip supplier in South Korea. This is negative for its outlook

“Its better product mix and lower costs have boosted earnings,” said Kim Jin-woo, an analyst at Korea Investment & Securities, referring to the group’s focus on its best-selling vehicles. “The chip shortage is helping ease oversupply in the auto industry, while demand is recovering fast although it has yet to reach a pre-pandemic level.”

Hyundai’s net profit jumped 175 per cent year on year to Won1.5tn ($1.3bn) in the quarter as sales grew 8.2 per cent to Won27.4tn. The results, which were better than analysts’ estimates, underscore how bad the situation was for the industry a year ago when big cities worldwide were locked down to curb the spread of the virus.

Shipments of Hyundai’s luxury Genesis brand surged 185 per cent during the quarter thanks to popular new models in the US and South Korea, according to Daiwa Securities. High-margin SUVs including the Palisade and upgraded Tucson accounted for 44.3 per cent of the company’s total shipments in the first quarter.

But analysts think the growth momentum may weaken in the second quarter, as Hyundai this month joined a long line of global automakers in adjusting production because of the chip crunch. The company had to briefly halt production three times in April and predicted that it would have to cut output next month.

“The difficulties in securing chips are lasting longer than expected. We will have to adjust our production volume in May in a similar scale to April or by larger volumes,” Seo Gang-hyun, Hyundai’s executive vice-president, told a conference call with analysts.

Analysts estimated that the halts are likely to cost Hyundai about 12,000 vehicles in lost production. “Hyundai could face more difficulties in securing chips as there is no major auto chip supplier in South Korea. This is negative for its outlook,” said Lee Hang-koo, an adviser at Korea Automotive Technology Institute.