Hyundai to develop alternatives to automotive chips

Hyundai Motor Co., South Korea’s top automaker, plans to develop alternative elements to automotive chips in preparation for a prolonged supply crisis that kept interrupting car production.

Hyundai was considering cooperation with major suppliers such as STMicroelectronics and Renesas Electronics Corp., while seeking long-term contracts to buy chip elements. The carmaker was known to have already ordered the components for the next year.

As the chip shortage continued, Hyundai on Sept. 27 tentatively decided to suspend overtime works in the coming weekend at its largest domestic plant, according to industry sources.

The plan was set to affect all of its five production lines at the Ulsan plant on Oct. 2. The plant with an annual capacity of 1.4 million units, 25% of the company’s global production, manufactures the premium Genesis models and the all-electric IONIQ 5, as well as popular sport utility vehicles (SUV) including the Santa Fe.

That came as the deteriorating chip shortage in September disrupted productions during weekdays. Hyundai suspended operations of another domestic plant in Asan that can produce 300,000 cars a year twice in September, causing production loss of 5,000 units, according to its filings to a financial regulator.

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Hyundai had expected the chip shortage to peak out in the second quarter and ease from the third. But a spread in the Delta variant of COVID-19 in Southeast Asia such as Malaysia shut most of automotive chip factories there.

The interruption hit engine control units (ECU) the hardest. Many plants of the ECU’s elements such as microcontroller units (MCU) are located in Malaysia, which has 25 chip factories out of 98 in Southeast Asia.

The ECU shortage was disturbing production and sales of Hyundai’s popular models including the Elantra, a compact car, and the Tucson, a compact (SUV). The company experienced difficulty selling the Tucson in the US and the Elantra in Southeast Asia due to low inventories. Its third-quarter earnings were likely to suffer from the shortage.

Global automakers were facing similar troubles. Toyota Motor Corp., which slashed global production in September by 40% from planned levels, recently said it could see output cut to a lower level in October. Other major producers such as General Motors Co., Ford Motor Co., BMW and Volkswagen AG reduced production this month.

The industry was expected to cut global automobile production by 7.7 million units this year with a sales loss estimated at $210 billion, according to a consulting firm AlixPartners. The grim forecasts were almost double of its predictions made in May including an output cut of 3.9 million vehicles and a revenue loss of $110 billion.

Write to Il-Gue Kim at black0419@hankyung.com
Jongwoo Cheon edited this article.