Hyundai Motor’s 3Q21 Profits Hit by Chip Shortage

South Korean Hyundai Motor, which together with affiliate Kia is among the world’s top 10 OEMs by sales, reported a net profit of US$1.10 billion for 3Q21, faintly missing analysts’ profit estimates for the quarter.

"Hyundai Motor expects that on-year sales growth might slow down for the rest of 2021 amid adverse business conditions caused by the unstable supply of semiconductor chips," said in a statement Hyundai Motor.

The US$1.10 billion trillion net profit reported for the quarter fell short to the US$1.2 billion average analyst forecast compiled by Refinitiv SmartEstimate. Results for 3Q21 are considerably better than 3Q20’s, when the Korean automaker reported a loss of US$287.64 million, when it was hit by a one-time expense related to engine quality issues and recalls, as reported by Reuters.

The semiconductor crisis is expected to continue until the end of 2021 and will likely to carry on into next year. With one quarter to go, IHS Markit’s global light vehicle production forecast has been cut by 6.2 percent (5.02 million units) for the year and by 9.3 percent (8.45 million units) in 2022. “We estimate that 1.44 million units of production were lost in 1Q21 and a further 2.60 million units in 2Q22,” said IHS Markit. Losses in 3Q21 continue increasing and are estimated to be above 3.2 million units.

"The chip shortage will likely continue into the fourth quarter but supply conditions would partially improve in the 4Q21 compared with 3Q21," said Seo Gang Hyun, Executive Vice President, Hyundai Motor.

This year’s capital expenditure was cut by 10 percent to US$6.85 billion to be “better prepared” for uncertainties, said the automaker, which revised 2021’s auto-business margin profit to 4.5-5.5 percent from a previously announced 4-5 percent, due to its “strong sales” of high-margin SUVs and its premium Genesis cars.

"Based on Hyundai's revision of its operating margin targets, the upcoming 4Q21 results would likely mark the most profitable quarter this year as the company seems to expect that the chip supply issues would likely improve," said to Reuters Lee Jae-il, Analyst, Eugene Investment & Securities.

Hyundai has been in Mexico for seven years and it became the 10th largest brand in the national market in 2020, with a 3.5 percent market share. During 1H21, when the sector recovered by 18 percent following the pandemic, the Korean automaker recovered by 32 percent, said to MBN Juan Carlos Ortega, Marketing Director México, Hyundai. From January to September 2021, Hyundai Motor sold 28,917 vehicles in Mexico to position itself in ninth place. Kia Motors, its affiliate, registered 61,699 vehicles sold during the same period to occupy fifth place.