Analysis: Hyundai bought chips when rivals didn't; its assembly lines are still rolling
26/02/2021 04:51
By Joyce Lee
SEOUL, Feb 26 (Reuters) - Hyundai Motor 005380.KS has so
far avoided a chip shortage that has plagued global automakers,
largely maintaining its stockpile of chips last year and even
accelerating purchases towards the end, three people with
knowledge of the matter said.
The shortage has forced production cuts worldwide, including
at Volkswagen VOWG_p.DE and General Motors GM.N , prompting
Germany and the United States to ramp up efforts to resolve the
shortage. urn:newsml:reuters.com:*:nL1N2KO09Y urn:newsml:reuters.com:*:nL1N2IX10E urn:newsml:reuters.com:*:nL8N2KE0BL
Other than Japan's Toyota Motor 7203.T , which said this
month it had enough chip inventory to last it about four months,
Hyundai and its sister firm Kia Corp 000270.KS are the only
global automakers to have maintained a stockpile of low-tech
chips that helped them keep up production. urn:newsml:reuters.com:*:nL1N2KG07D
If it doesn't ease soon, though, the shortage could hit
Hyundai too, as tight capacity on factory floors starts
pressuring production of even high-tech auto chips, said two of
the people, who are familiar with the company's purchases.
The South Korean automaker kept buying chips even as rivals
cut orders to reflect diminished demand because of the pandemic.
Analysts said past events that roiled Hyundai's supply chain
and forced it to halt production have shaped this more
conservative take on inventory, a departure from automakers'
typical just-in-time approach.
"Like other automakers, Hyundai also planned to cut
production at the beginning of the year because of COVID-19,"
said one of the people with direct knowledge of Hyundai's
purchases.
"But procurement read the trend of the semiconductor
industry cutting auto chips production and said, 'if we don't
buy them as well, we'll be in trouble later on,'" said the
person, referring to a rush of buying by gadget makers that
sucked up most chipmaking capacity. urn:newsml:reuters.com:*:nL1N2IX10E
Chipmakers who supply auto companies outsource most of their
production to contract manufacturers like Taiwan's TSMC
2330.TW , which analysts say often prioritise orders from
electronics clients who account for nearly all their revenue.
urn:newsml:reuters.com:*:nL8N2KO3Q2
Hyundai still bought fewer chips in 2020 than it did in
2019, said one of the sources with direct knowledge of auto chip
production. But it sharply increased buying in the quarter that
ended in December, the person said.
The people declined to be identified because they are not
authorised to speak to media.
The fact that Hyundai's domestic market was relatively solid
through the pandemic most likely influenced 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 supplies https://www.reuters.com/article/us-southkorea-japan-laborers-chip-analys-idUSKCN1UR3LZ
of chemicals at South Korean chipmakers, and in early 2020,
when the coronavirus was spreading in China, production was
halted in Hyundai and Kia's plants because of shortages of a
part from China. urn:newsml:reuters.com:*:nL4N2A619F
A spokeswoman told Reuters Hyundai was collaborating with
its suppliers to maintain stable production.
RISING CONCERN
Since Hyundai kept buying from chipmakers and global auto
parts suppliers such as Bosch and Continental CONG.DE before
the shortage worsened, they also managed to keep costs down.
"This has allowed Hyundai to first, secure auto chips, and
second, buy them when they were cheaper," said Kim Jin-woo,
analyst at Korea Investment & Securities.
Hyundai also has more local suppliers than rivals.
These suppliers - including Telechips 054450.KQ , which
contracts fabrication out to Samsung Electronics 005930.KS -
are likely to prioritise Hyundai, from whom they get much of
their revenue, analysts said.
One person with direct knowledge of Hyundai's purchasing
decisions said the company has diversified suppliers for at
least one chip since late last year.
In a statement on Thursday, Hyundai said it plans to halt
operations at one South Korean factory for five days in March to
adjust inventories of some models. urn:newsml:reuters.com:*:nS6N2KO00G
A union official told Reuters the company was trying to save
chips by adjusting production of its weaker-selling Sonata
model. Sonata in South Korea sold 67,440 units last year versus
145,463 units of Hyundai's most popular sedan Grandeur.
According to an internal document seen by Reuters, Hyundai
expects the shortage to ease in the third quarter, and Kia said
last month that since October it had been reviewing its supply
chain to prevent production disruption.
"We would not say we are prepared for the next three to six
months, but we could tell you that we are not seeing any
immediate production disruption," Kia said on an earnings call
last month.
Still, there is rising concern at Hyundai, two of the three
people said. The company is checking inventory more frequently
and trying to lock down supply contracts earlier, one of them
said.
The union official said Hyundai had told the union this week
that Hyundai "had secured a lot of chips" but that the situation
was becoming "a bit difficult".
"Clients are trying to pull all they can, while suppliers
are being strategic about which order they meet," said the
source with direct knowledge of auto chip production. "It's
going to get worse before it gets better."
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GM CEO says chip shortage could hit profits by $2 bln, but
trucks won't be hurt urn:newsml:reuters.com:*:nL1N2KG0YU
Ford cuts output of F-150 pickups due to semiconductor shortage
urn:newsml:reuters.com:*:nL1N2KA223
Honda and Nissan to sell a quarter of a million fewer cars
because of chip shortage urn:newsml:reuters.com:*:nL1N2KF0HM
Chip shortage to hit production at some Volkswagen plants in
February urn:newsml:reuters.com:*:nL8N2K25PY
GRAPHIC: Estimated volume impact from auto chips shortage at
some factories https://tmsnrt.rs/2ZUUnZa
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(Reporting by Joyce Lee and Heekyong Yang; additional reporting
by Hyunjoo Jin; Editing by Sayantani Ghosh and Gerry Doyle)
((jungyoon.lee@tr.com; +82 2 6936 1467;))