Hyundai, Kia Factories Crippled In South Korea As Part Suppliers In China Remain Closed

A globalized world is full of complex supply chains that wind in and out of countries. When one country goes offline, the chain breaks, and that’s exactly what’s happening in Asia. 

Yonhap News reports that Hyundai Motor Co. and its sister Kia Motors Corp. suspended production lines in South Korea after it was hit with a parts shortage from China as the coronavirus outbreak continues to leave entire manufacturing hubs shut down.

Hyundai is expected to close four South Korean plants by Friday. 

The plants are expected to reopen on Feb. 10 or 11, but that entirely depends if manufacturing plants, cities, and transportation networks open in China. 

“If auto parts factories in China resume operations on Feb. 10 or 11, production losses from lack of parts will be limited,” the spokesman said. However, if the factories in China where Hyundai sources parts from remain closed through early next week, then severe supply chain disruptions will be seen, causing production output to crater in South Korea. 

Vice President Ha Eon-tae, head of Hyundai’s main plant, emailed workers at Ulsan plants on Monday, specifying how production suspensions are imminent because part suppliers in China remain closed due to the virus.

According to the local union, Kia, which is 34% owned by Hyundai, has had output reduced in Hwaseong and Gwangju, outside of Seoul, for similar issues.

Hyundai and Kia, together, are the world’s fifth-largest carmaker by sales. If production lines in South Korea are halted and extend past next week, then a slump in economic output could weigh down South Korean 1Q GDP figures. 

The fallout from the virus could force investors to reprice growth across the world. This would undoubtedly weigh on risk asset prices that remain near all-time highs.