Hyundai Motor expects vehicle production to rebound in first half of year

Hyundai Motor Company on Tuesday forecasted that its vehicle production is likely to rebound in the first half of this year as the global chip shortage is expected to ease gradually from the second quarter onwards.

The shortage is expected to continue in the first quarter due to the spread of the Omicron variant of coronavirus and the prolonged effect in Southeast Asia. This has resulted in chip sourcing troubles for the company, pushing its sales to less than the targeted 4 million vehicles in 2021. “The normalization of auto chip supply and demand is expected in the third quarter," the company's Executive Vice President Seo Gang Hyun said on a conference call, Reuters reported.

Southeast Asia is significant to the supply of basic chips to the automotive and electronic industries with Malaysia's chip assembly industry accounting for more than a tenth of a global trade worth over $200 billion.

Hyundai and its sister company Kia Corp have forecast a 12.1% jump in their combined global sales for this year, after their sales fell almost 4% short of a target of 6.92 million vehicles last year due to the chip shortages. Hyundai reported a nearly 50% drop in its profit for the quarter ended December, which is quite less than the analysts' estimate.

The company reported a net profit of 547 billion won ($456 million) as compared to 1.1 trillion won in the year-ago period. That compared with an average analyst forecast of 1.5 trillion won compiled by Refinitiv SmartEstimate.

Additionally, soaring raw material prices, component shortages and logistical bottlenecks caused by the pandemic are likely to further drive up costs in the current quarter, as per analysts. "It is still difficult to forecast how the chip shortage will pan out ... also there will be other uncertainties involving the spread of the Omicron variant," said Lee Jae-il, an analyst at Eugene Investment & Securities.

(with inputs from Reuters)