Hyundai Motor will reduce its investment in manufacturing due to a shortage of semiconductor supply, the Korean automaker announced on Tuesday. In a conference held for investors, Hyundai reported $1.10 billion net earnings in the third quarter of 2021.
While speaking of supply shortage, the company added that it would reduce the facilities investments by almost $1 billion (0.9 trillion won). With this, the company apparently plans to divide investments in research and development projects and make other ‘strategic investments.’ The company has not touched upon the details of investments.
Hyundai Motor spoke to investors in the meeting where officials stated, “We have to respond better to the various challenges arising from the continued supply and demand mismatch in semiconductors. We are on track to secure more liquidity.”
Earlier this quarter, European automakers Ford Renault Group, Skoda had declared supply reduction due to a shortage of semiconductors. Hyundai Motors followed suit and announced its cut down on investments.
At present, Hyundai is looking for new chip partners to meet its increasing semiconductor demand. For this, the company is in talks with some major chip companies in Korea.
The company stated, “The semiconductor shortage will continue in the fourth quarter and we expect it will have a lasting impact through next year. However, in the fourth quarter, we are seeing some positive signs such as extended production dates from the third quarter.”
Industry experts suggest that Hyundai’s decision on investment reduction will affect the company’s sales in the fourth quarter while it may continue in the coming year. The company is already facing a sharp drop in its sales in various countries, including South Korea, the U.S., India, and China.
Despite being the fifth-largest automobile company globally, Hyundai was hit by a global shortage of semiconductors. It followed a 9.9% drop in its sales in the last few months.
Although the automaker managed to increase its third-quarter profit by 4.7%, there was a steep fall in profits ratio compared to the last quarter. According to reports, the company’s operating profit was reduced to 14.8% in the last quarter.
The company has projected slow growth in the upcoming year and plans to proactively manage the semiconductor issue. Admitting the growth concerns, the company stated, “Hyundai Motor expects on-year sales growth might slow for the rest of 2021 amid adverse business conditions caused by the unstable supply of semiconductor chips as well as a potential unfavorable shift in the currency environment.”
Hyundai is likely to develop its own chips in the near future. Jose Munoz, the Chief of global operations, revealed the company’s interests in self-developed chips and semiconductors. For the EV and battery supply chain, Hyundai will continue working with LG Energy Solutions with the project going online from 2023.