The global shortage of semiconductor chips caused by the Covid-19 pandemic has completely disrupted manufacturing in the automobile industry. Several car manufacturers across the globe have had to cut production due to shortage of these microchips. This has led to unusually long waiting periods on several popular vehicles, something we are widely experiencing here in India as well. However, Hyundai seems to have avoided a similar fate so far. Here's how!
The Hyundai Motor Group, including Kia, began stockpiling chips last year while most other carmakers started cutting orders for chips due to diminished new car demand in 2020. Not only did Hyundai keep on ordering chips, but they actually accelerated purchases towards the end of the year. In a report by Reuters, analysts said that past events that disrupted Hyundai's supply chain and forced them to halt production have shaped this more conservative approach on inventory, a departure from automaker's typical just-in-time approach.
“But procurement read the trend of the semiconductor industry cutting auto chips production and said, ‘if we don’t buy them as well, we’ll be in trouble later on,’” one source with knowledge of the matter told Reuters. This has allowed Hyundai to not only secure the microchips, but also buy them when they were cheaper. The company was thus able to keep production consistent, as was evident by the fact that the carmaker's home market remained relatively strong throughout the pandemic in 2020.
Semiconductor chips are a very integral part of a car's electronics and the ECU. Without these chips, modern infotainment systems, driver aid's and other critical electronic components wouldn't work at all. These vital components can't be manufactured and fitted to the cars without the chips. Global shortage of semiconductor chips have completely disrupted the automotive industry’s supply chain and is severely impacting manufacturing around the globe.
It's not just the auto industry that has a high demand for the semiconductor chips. The auto industry is also having to compete with other consumer electronic devices, such as gaming consoles, laptops, desktops and tablets, that also require these semiconductor chips. This has, in fact, made the shortage even more pronounced. Although the company has said it does not see any immediate production disruption, Hyundai and Kia's chip supplies wouldn't last forever. If the situation does not ease soon enough, the shortage will hit Hyundai too.