Due to the Semiconductor Shortage... Hyundai Motor and Kia Face Production Halt Crisis

Hyundai Motor Ulsan Plant

[Asia Economy Reporter Changhwan Lee] Due to the global shortage of automotive semiconductors, Hyundai Motor Company is facing the risk of having to halt operations at some of its factories. With the semiconductor shortage likely to continue through the second half of this year, there is also a possibility that temporary shutdowns could spread to all Hyundai and Kia factories.

According to industry sources on the 30th, Hyundai Motor’s Ulsan Plant 1 held an emergency meeting and plans to discuss a shutdown next week. The most likely shutdown period being considered is from the 5th to the 13th, lasting about seven days.

Ulsan Plant 1 is a key Hyundai factory producing future vehicles such as the Ioniq 5 and Kona EV (electric vehicle). The shutdown is being pushed due to shortages of parts like front cameras and drive motors, which require a large number of semiconductors. If operations stop, production cuts of approximately 6,500 units of the Ioniq 5 and 6,000 units of the Kona are inevitable.

The problem is that the shutdown may not be limited to Plant 1 but could extend to Plants 2 through 5. Currently, other plants are also barely able to conduct weekend overtime work in April. Kia has also canceled weekend overtime at its Hwaseong plant in April. Inside and outside the companies, the possibility of additional shutdowns remains open depending on the semiconductor supply situation.

Red flags have also been raised regarding performance. In addition to concerns about sluggish sales due to production cuts, it is reported that the recent average purchase price has risen by about 20% due to supply shortages, which is expected to negatively impact profitability. Currently, companies supplying automotive semiconductors to Hyundai and Kia are purchasing some products at prices up to five times higher than usual.

Researcher Seonjae Song of Hana Financial Investment explained, "If semiconductor prices rise by 10%, the automobile production cost increases by about 0.18%," adding, "This could reduce Hyundai and Kia’s operating profit by around 1%."

Researcher Sunwoo Kwon of SK Securities analyzed, "The shortage of automotive semiconductors, which has continued since the beginning of the year, is gradually expanding, and it is expected that about 1 million vehicles worldwide will face production disruptions in the first quarter alone," adding, "Hyundai Motor Group is also in an environment where it is difficult to be free from parts supply issues."

Semiconductor Crisis Expected to Continue Through Second Half

The shortage of automotive semiconductors has struck not only South Korea but the entire world. The primary cause is attributed to semiconductor companies adjusting production by converting automotive semiconductor lines to IT device semiconductor lines after vehicle demand dropped due to the COVID-19 outbreak last year.

Then, as the spread of COVID-19 slowed and consumption rapidly recovered, automotive semiconductor supply could not keep up with demand. Additionally, recent unexpected factors such as the cold wave in the United States and a fire at the Renesas plant in Japan have also had an impact.

Market research firm IHS Markit initially forecasted a global vehicle production disruption of 672,000 units in the first quarter due to automotive semiconductor supply issues in January but recently raised the estimate to 1 million units. IHS Markit also expects production disruptions to continue into the second quarter.

In fact, major global automakers began production cuts ahead of Hyundai Motor Group. General Motors (GM) has halted operations at major plants in the United States, and GM Korea has reduced the operating rate of its Bupyeong Plant 2 to 50%, producing vehicles such as the Malibu and Trax.

Volkswagen cut production by about 100,000 units in China, North America, and Europe in the first quarter, while Toyota and Ford are also experiencing production disruptions at major plants in the United States and Japan.

The South Korean government has recognized the seriousness of the situation and is taking steps to improve it. On the 10th, Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, stated at the Innovation Growth BIG3 Promotion Meeting, "Since the global shortage of automotive semiconductors is expected to continue at least through the third quarter, the government and private sector will jointly respond to ensure no disruption in vehicle production." It is also reported that the government recently requested cooperation from the Taiwanese government regarding automotive semiconductor supply.

Jung Manki, President of the Korea Automobile Manufacturers Association, pointed out, "To solve the problem, it is necessary to accelerate the establishment of an industrial ecosystem from a mid- to long-term perspective, and for this, strengthening cooperation among demand industries, fabless companies, and foundries is essential," adding, "The government should also nurture the automotive semiconductor industry as one of the country’s next-generation growth engines through expanded R&D support, training of specialized design personnel, and fostering the semiconductor equipment industry."

This content was produced with the assistance of AI translation services.