Here is how Hyundai motors keeps rolling in the face of a global chip shortage

People with knowledge of the matter have hinted that Hyundai Motor has so far avoided a chip shortage that has plagued global automakers because she largely maintained her stockpile of chips last year and even accelerated purchases towards the end.

The shortage has forced production cuts worldwide, including at Volkswagen and General Motors, prompting Germany and the United States to ramp up efforts to resolve the shortage.

Other than Japan’s Toyota Motor, which said this month it had enough chip inventory to last it about four months, Hyundai and its sister firm Kia Corp are the only global automakers to have maintained a stockpile of low-tech chips that helped them keep up production.

The sources say, though, that if the global shortage doesn’t ease soon, the shortage could hit Hyundai too, as tight capacity on factory floors starts pressuring production of even high-tech auto chips, said two of the people, who are familiar with the company’s purchases.

The South Korean automaker kept buying chips even as rivals cut orders to reflect diminished demand because of the pandemic.

Analysts said past events that roiled Hyundai’s supply chain and forced it to halt production have shaped this more conservative take on inventory, a departure from automakers’ typical just-in-time approach.

Chipmakers who supply auto companies outsource most of their production to contract manufacturers like Taiwan’s TSMC, which analysts say often prioritise orders from electronics clients who account for nearly all their revenue.

Hyundai still bought fewer chips in 2020 than it did in 2019, said one of the sources with direct knowledge of auto chip production. But it sharply increased buying in the quarter that ended in December, the person said.

The fact that Hyundai’s domestic market was relatively solid through the pandemic most likely influenced the company’s plans, analysts said, as did its experiences with China and Japan.

Hyundai took lessons from a diplomatic spat with Japan in 2019 that affected supplies here of chemicals at South Korean chipmakers, and in early 2020, when the coronavirus was spreading in China, production was halted in Hyundai and Kia’s plants because of shortages of a part from China.

Since Hyundai kept buying from chipmakers and global auto parts suppliers such as Bosch and Continental before the shortage worsened, they also managed to keep costs down.

Hyundai also has more local suppliers than rivals.

These suppliers – including Telechips, which contracts fabrication out to Samsung Electronics – are likely to prioritise Hyundai, from whom they get much of their revenue, analysts said.

One person with direct knowledge of Hyundai’s purchasing decisions said the company has diversified suppliers for at least one chip since late last year.

In a statement on Thursday, Hyundai said it plans to halt operations at one South Korean factory for five days in March to adjust inventories of some models.

According to an internal document, Hyundai expects the shortage to ease in the third quarter, and Kia said last month that since October it had been reviewing its supply chain to prevent production disruption.

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