Chip shortage takes toll on Hyundai's quarterly earnings

Automotive Industry

Source: Automotive News Europe, 2021-10-26

Hyundai Motor said it expects it will take a long time to get back to normal chip supplies after the automaker reported a net profit of 1.3tn won ($1.10bn) for the July-September quarter.

In the same period in 2020 the group, which includes Kia, posted a loss of 336bn won when it was hit by a one-time expense related to engine quality issues and recalls.

"Hyundai Motor expects that on-year sales growth might slow down for the rest of 2021 amid adverse business conditions caused by the unstable supply of semiconductor chips," the company said in a statement on 26 October.

Hyundai said the chip shortage would likely continue until the end of 2021 or 2022 and it expected it would take a long time to get back to normal.

"The chip shortage will likely continue into the fourth quarter but supply conditions would partially improve in the fourth quarter compared with the third," Hyundai Motor's Executive Vice President, Seo Gang Hyun, said in a call with analysts.

The microchip crisis, triggered partly by surging demand for laptops and consumer electronics during the pandemic, has shuttered auto production lines globally and forced automakers to slash shipment forecasts.

Hyundai previously said its sales growth might slow in the second half due to challenging business conditions, including the unstable supply of automotive chips. 

The company said it had cut this year's capital expenditure spending by more than 10% to 8tn won to better respond to uncertainties, including the coronavirus pandemic.

It revised up this year's auto-business operating margin profit to 4.5% to 5.5% from a previously announced 4% to 5%, citing strong sales of its high-margin SUVs and its premium Genesis cars.

Lee Jae-il, analyst at Eugene Investment & Securities: "Based on Hyundai's revision of its operating margin targets, the upcoming fourth quarter results would likely mark the most profitable quarter this year as the company seems to expect that the chip supply issues would likely improve."

Hyundai had turned in its best quarterly profit in about six years in the April-June quarter thanks to its conservative supply chain management that helped it to navigate the shortage better than other automakers.

But the prolonged crisis forced the automaker to suspend some production during the third quarter.

In October 2021, Hyundai's Global Chief Operating Officer, Jose Munoz, said the automaker wanted to develop its own chips to reduce reliance on others

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