Hyundai Motor is struggling to sustain production amid chip breaches

SEOUL – Hyundai Motor on Monday for the third time in a month suspended car production at a domestic factory due to a global shortage of chips, raising concerns that the shortage could become a chronic disruption to production.

South Korea’s largest carmaker, which along with its affiliated Kia Motors ranks 5th globally, said it had stopped producing its plant in the western port city of Asana, which accounts for 7% of its revenue, citing problems in car semiconductor deliveries. The company announced it would resume production on Wednesday.

The announcement came a week after Hyundai suspended production at the same factory for two days due to a lack of chips, resulting in a production loss of 2,050 cars. Hyundai also halted production for five days in Asana last month, failing to produce 5,100 cars.

About 4,000 employees in the factory produce Sonata and Grandeur limousines, which are exported to 77 countries. Other key Hyundai domestic factories are located in Ulsan, its largest, which produces 17 models, and Jeonju, where 10 types of buses and trucks are produced. These factories did not suspend production due to the supply of chips.

Stopping in Asana seems striking. Hyundai Mobis, a subsidiary of Hyundai Motor, has also suspended its production lines at Asana, accounting for 3% of its revenue.

Shares of Hyundai Motor fell 0.43% in trading on Monday afternoon.

A wide range of global industries are facing a shortage of key devices that are increasingly running everything from smartphones and video games to home appliances due to growing demand amid a coronavirus pandemic.

Analysts say the shortage could cut Hyundai’s car shipments by 4% in the second quarter from a year ago.

Angela Hong, an analyst in Nomura, said financial services company cut its second-quarter production forecast for Hyundai by 4% from a year ago due to chip breaks. “The second quarter is usually a strong season for car production,” Hong said. “Still, we anticipate that Hyundai Motor’s deliveries in the second quarter will remain virtually unchanged from the quarter due to declining production caused by the chip shortage.”

She said suspensions are likely to become a regular issue as the company is expected to continue to adjust production of low-demand models, while production of base models, including SUVs, electric cars and luxury Genesis models, is likely to be hit later.

Hyundai President Kong Young-woon admitted last week that the carmaker was struggling to secure enough car chips during a meeting with President Moon Jae-in. Kong said the company is working to get them more by eavesdropping on foreign suppliers.

Samsung Electronics and SK Hynix have made South Korea a global semiconductor power plant, but their domestic production is focused on memory chips and chips for other companies, mainly in the smartphone and telecom modem industry.

Moon on Thursday called on Kong and other executives of South Korean companies in the semiconductor, automotive and shipbuilding industries, as well as government ministers, to discuss strategies in key sectors.