Due to Soaring Semiconductor Prices... Hyundai Motor and Kia Operating Profit May Decrease by 2%

Hyundai Motor Ulsan Plant
Photo by Yonhap News

[Asia Economy Reporter Changhwan Lee] The shortage of automotive semiconductors is expected to continue until the end of this year, raising concerns that the operating profits of domestic automakers such as Hyundai Motor and Kia may decrease more than anticipated.

According to Hana Financial Investment on the 27th, the shortage of automotive semiconductor supply is expected to persist at least until the end of this year. This is due to the nature of semiconductor investments, which are not easy to expand in the short term. Additionally, companies are reluctant to expand production because it requires large-scale capital investment.

As the semiconductor supply shortage continues, price increases for deliveries are also expected. The automotive industry anticipates that automotive semiconductor companies will demand about a 20% price increase in the second half of the year. This inevitably leads to a deterioration in the profitability of automakers.

According to a report by Hana Financial Investment, automotive semiconductors account for about 2% of the production cost of vehicles. When estimated as the unit cost portion of vehicle production costs, it is around $471. Assuming that the cost increase is shared equally between automakers and parts suppliers, Hyundai Motor's operating profit is analyzed to decrease by about 2%.

Hyundai Motor's expected operating profit for this year is 6.9 trillion KRW, so a 2% reduction would mean a loss of approximately 140 billion KRW due to semiconductors. Its affiliate Kia could also see a loss of about 100 billion KRW out of its expected operating profit of 4.8 trillion KRW. Similar levels of damage are feared for other partners including Hyundai Mobis.

More worrisome is the direct damage caused by production disruptions. Hyundai Motor has already suffered direct damage by temporarily halting major plants such as those in Ulsan and Asan due to semiconductor supply shortages. It is also known that the current production lines are producing fewer vehicles than usual. It is reported that operating profit decreases by about 50 billion KRW for every 10,000 units of production disruption.

However, there is some consolation in the analysis that Hyundai Motor Group can offset losses caused by automotive semiconductors through increased market share and vehicle price hikes. Hyundai Motor's market share in the U.S. in April was 5.3%, up 0.4 percentage points from the previous year, and Kia also rose 0.2 percentage points to 4.6%.

Domestic sales also showed strong performance through April. Incentives paid to dealers in the U.S. decreased by 6-7%, reportedly improving profitability.

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