Hyundai profits accelerate but chip shortage slowdown lies ahead 

The Korean car-maker has had a hugely successful start to the year as its top-end SUVs proved popular at home and in the States – and healthy semiconductor stocks proved their worth too

by Sean OMeara
Hyundai profits accelerate but chip shortage slowdown lies ahead 
Hyundai's net profits in the first quarter of this year soared 187% to 1.3 trillion won ($1.16 billion). Photo: Reuters

Korean auto giant Hyundai has just had its best quarter in four years but warned the worldwide chip shortage will hit its production lines next month.

The Hyundai Motor Co nearly tripled its quarterly profits in the first part of this year, as customers at home and in the US bought up its high-margin sports-utility vehicles and premium Genesis cars, with the South Korean automaker able to draw on a healthy chip inventory. 

That saw, in the quarter ended March 31, net profits surge 187% to 1.3 trillion won ($1.16 billion) from 463 billion a year earlier, when business slumped as countries shut down to limit the spread of the coronavirus.

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But the global pinch on semiconductor supplies, now exacerbated by other events including a fire at a chip factory in Japan and storms in Texas, is set to catch up with Hyundai too.

Hyundai, which together with affiliate Kia Corp, is among the world's top 10 automakers by sales, has already had to pause production three times since the beginning of this month as it saved chips for its most popular models.

"The condition of semiconductor parts is being a little more prolonged than we expected," said Seo Gang-hyun, an executive vice-president at Hyundai.

PRODUCTION ADJUSTMENTS

"As the semiconductor procurement condition is rapidly changing, it's difficult to predict production status after May. We expect that there will likely be similar production adjustment in May, similar or more than what we had in April."

Analysts have said the halts so far are likely to cost Hyundai about 12,000 vehicles in lost production, and future results will be hurt as the chip crisis continues.

"Although Hyundai could end up cutting some production, the company likely won't see a huge impact," said Lee Jae-il, an analyst at Eugene Investment & Securities.

HIGHER MARGIN

This was because favourable market conditions backed by strong demand as well as average selling prices boosted by sales of higher margin cars would probably help offset the decreased output, he added. 

Hyundai is expected to report net profits of 1.4 trillion won for the April to June period, up 536% from the corresponding period a year earlier, Refinitiv SmartEstimate showed. 

Shares of Hyundai Motor, Asia's fifth-biggest automaker by market value, rose 2% after its results on Thursday but fell back to trade little changed. The broader market rose 0.2%.

  • Reporting by Reuters

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