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Hyundai says chip crunch is easing as profits soar

South Korean automaker expects second-half boost as bottlenecks clear

The Hyundai Motor booth at the Beijing International Automotive Exhibition seen here in September 2020. Hyundai sells most of its cars overseas.   © Reuters

SEOUL -- Hyundai Motor said the global chip shortage was gradually easing as the South Korean automaker reported operating profit tripled in the second quarter from a year ago thanks to strong worldwide sales.

Hyundai said Thursday that its operating profit reached 1.9 trillion won ($1.7 billion) in the April to June period, up 219.5% from the same period last year, despite production stoppages at some factories due to chip shortages.

Revenue soared 38.7% to 30.3 trillion won. The company's net profit increased to 2 trillion won, compared to 377.3 billion won in the same period of last year. Quarter-on-quarter, its operating profit rose 13.8%, while revenue increased 10.7%.

Hyundai and affiliate Kia together form the world's fifth-largest automaker.

Seoul-based Hyundai sold 1 million vehicles in the three months through June, 831,000 of them overseas, up 46.5% from the year before.

"Sales of SUV models and Genesis luxury brand models drove the momentum in sales volume and declining incentives helped lift revenue and profitability in the second quarter, as the ongoing recovery from the global COVID-19 pandemic spurred automotive demand," said Hyundai in a statement.

The automaker said global chip supply hit the bottom in the second quarter.

"We expect it will get better gradually from the third quarter, although some chips will do so from the fourth quarter," said a Hyundai executive in a conference call. "We already ordered chips for 2021 and 2022."

In the mid- and long-term, the executive said that the company will strengthen cooperation with various semiconductor partners, diversifying its supply chains.

Analysts say Hyundai's sales are set to rise further in the second half of the year as the chip supply improves. The automaker's global shipments are forecast to rise 7% in the second half versus the first "on gradually improving chip supply, while the brand's tight inventory globally will likely push Hyundai Motor to keep plant utilization at above 100%, at least until the first half of 2022," said Nomura analyst Angela Hong.

IHS Markit, however, expects continued disruption in the auto industry from the chip shortage in the third quarter.

"We expect an improvement over the first or second quarter because the situation is becoming better understood, and great efforts are being made to enhance visibility within a very complex supply chain," it said in a report earlier this month. "However, there are still mixed signals, and it is too early to sound the all-clear."

The automaker said that it is considering investing more in the U.S. as the Biden administration plans to remove electric vehicle subsidies for cars made outside the country. Hyundai runs production lines in Montgomery, Alabama.

Hyundai's board approved a plan to pay an interim dividend of 1,000 won per share -- the same level as in 2019.

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