How Hyundai Avoided The Chip Shortage Plaguing Tesla, Other Automakers

Hyundai Motor Company HYMTF has managed to evade a chip crunch that has affected other automakers worldwide.

What Happened: The South Korean automaker managed to avoid the shortage by stockpiling semiconductors last year and even purchasing more towards the end of 2020, people familiar with the matter told Reuters.

Like its peers, Hyundai too planned to cut production at the beginning of 2021 because of COVID-19. “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,” according to one of the people.

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Hyundai still purchased fewer chips last year than it did in 2020, but reportedly sharply increased purchases in the quarter ended December.

Why It Matters: The purchases also allowed the Korean automaker to buy the semiconductors at lower prices, according to Kim Jin-woo, an analyst at Korea Investment & Securities, Reuters reported.

Hyundai expects the chip shortage to lessen in the third quarter, while subsidiary Kia said it was prepared for the next three to six months and does not reportedly see any “immediate production disruption.”

Last month, Toyota Motor Corporation TM said it has enough chip inventory to last for about four months, as per Reuters. 

On Thursday, Tesla Inc TSLA CEO Elon Musk acknowledged that the automaker’s Fremont factory halted production temporarily due to a parts shortages. 

Chip shortages have eroded automotive earnings by one-third at both Ford Motors Company F and General Motors Company GM, according to Bloomberg.

Price Action: On Thursday, Hyundai OTC shares closed 1.21% lower at $48.15.

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