Hyundai bought chips when competitors did not – now their collection lines are still going

SEOUL – Hyundai Motor has so far avoided chip shortages that have plagued global manufacturers, largely maintaining the stock of chips last year and even accelerating purchases near the end, three experienced experts said. the case.

The shortage has pushed production cuts around the world, including at Volkswagen and General Motors, prompting Germany and the United States to take concerted efforts to address the shortage.

In addition to Toyota Motor in Japan, which said this month that they had enough chip inventory to last about four months, Hyundai and its sister company Kia Corp. the same global manufacturers that maintained a stockpile of low-tech chips that helped them maintain productivity.

If it’s not easy soon, however, the shortage could hit Hyundai as well, as the tight capacity of factory-built platforms is starting to push production even high-tech chips, said two the people, who are familiar with the company’s purchase.

The South Korean automaker continued to buy chips even as competitors cut orders to reflect reduced demand due to the pandemic.

Analysts said past events that rolled Hyundai’s supply chain and forced them to stop production have shaped this more conservative investment, a departure from the usual approach. the direct time of automakers.

“Like other manufacturers, Hyundai also planned to cut production at the beginning of the year due to COVID-19,” said one of the people with direct experience of buying Hyundai.

“But he read the semi-broadcast industry’s moving supply cutting the production of automated chips and said, ‘If we don’t buy them too, we’ll be in trouble later,'” the man said, adding. mention of purchase speeds by device manufacturers that have upgraded most of the chip-making capability.

Chip makers that supply automotive companies outsource most of their production to contract manufacturers like TSMC Taiwan, which analysts often say prioritizes for orders from electronic clients that make up almost all of their revenue.

Hyundai still bought fewer chips in 2020 than it did in 2019, said one of the sources with direct experience in auto chip production. But it significantly increased purchases in the quarter that ended in December, the man said.

The people refused to be identified as not having the authority to speak to the media.

The fact that Hyundai’s domestic market was relatively strong through the pandemic is most likely to influence the company’s plans, analysts said, as did its experiences with China and Japan.

Hyundai took lessons from a diplomatic spat with Japan in 2019 that affected the supply of chemicals at South Korean chipmakers, and in early 2020, when the coronavirus was spreading in China, production was halted in Hyundai and Kia plants due to partial shortage from China.

A spokesman said Hyundai was cooperating with the suppliers to maintain sustainable production.

Since Hyundai continued to buy from global chip manufacturers and auto parts suppliers such as Bosch and Continental before the shortage worsened, they have been able to keep costs down.

“This allowed Hyundai to buy automotive chips first, and second, buy them when they were cheaper,” said Kim Jin-woo, an analyst at Korea Investment & Securities.

Hyundai also has more local suppliers than competitors.

These suppliers – including Telechips, which makes a contract to Samsung Electronics – are likely to give Hyundai a priority, since they receive much of their revenue, analysts said.

One person with direct experience of Hyundai purchasing decisions said the company has diversified suppliers for at least one chip since the end of last year.

In a statement Thursday, Hyundai said it plans to suspend operations at one South Korean factory for five days in March to adjust investments of some models.

A union official said the company was trying to save chunks by changing the production of the weaker Sonata model. Sonata in South Korea sold 67,440 units last year against 145,463 units of Hyundai’s most popular Grandeur sedan.

According to an internal document seen by Reuters, Hyundai expects the easing to ease in the third quarter, and Kia said last month, since October, that they have been reviewing the deficit. their supply chain to prevent production.

“We would not say we are ready for the next three or six months, but we could tell you that we are not seeing an immediate production crisis,” Kia said in an employment call last month.

However, Hyundai is increasingly concerned, two of the three said. The company checks inventory more frequently and tries to lock supply contracts earlier, one said.

A union official said Hyundai had told the union this week that Hyundai had “received a lot of chips” but that the situation was becoming “a bit difficult.” ”

“Clients are trying to pull as much as they can, while suppliers get a strategy on what order to meet,” said the source with direct experience of automated chip production. “It’s going to get worse before it gets better.”