Produced by Zhineng Zhixin

Hyundai Motors' decision to dissolve its Semiconductor Strategy Group has rocked the industry. Established just two years ago with the mission of fostering independent automotive chip development, its disbandment underscores the numerous challenges encountered in strategic execution.

Let's delve into the underlying reasons behind this move and its implications for Hyundai's future development:

● First, we'll explore why Hyundai abandoned its semiconductor strategy, examining the core issues and challenges it faced;

● Second, we'll analyze alternative strategies Hyundai might adopt and assess its long-term prospects under the new industrial chain layout.

This decision becomes especially intriguing amidst the aggressive foray of Chinese automakers into in-house chip development. Who has the right approach?

Part 1

Behind the Dissolution of the Semiconductor Strategy Division: Issues and Challenges

● Original Intent and Goals of the Semiconductor Strategy Division

In 2022, Hyundai Motors established a semiconductor research lab, aiming to evolve into a Semiconductor Strategy Group. The goal was to reduce reliance on external suppliers by developing independent automotive chips and building a stable, efficient supply chain.

Key tasks included:

◎ Automotive Chip R&D: Designing chips for autonomous driving, ADAS, power control, etc.

◎ Supply Chain Integration: Reducing dependence on international foundries like TSMC through in-house technology, especially amid geopolitical risks, and seeking local Korean chip manufacturer partnerships.

◎ Supply Chain Resilience: Mitigating chip shortage risks and enhancing resilience.

However, this strategy faced significant issues during execution, leading to its dissolution.

Automotive chip development spans complex areas like logic design, architecture optimization, software adaptation, and foundry manufacturing. Hyundai lacked deep expertise in the chip field, and compared to companies like Tesla with established hardware design capabilities, Hyundai's technical reserves were weak. Chip development is costly and challenging to profit from short-term, conflicting with Hyundai's overall resource allocation priorities.

Hyundai attempted collaboration with Hyundai Mobis and domestic manufacturers like Samsung Electronics, but internal department coordination and integration were inefficient.

Moreover, negotiations with international foundries like TSMC stalled, failing to gain cost advantages or surpass international standards in yield and performance, preventing scale economies in the short term.

Hyundai heavily relies on external suppliers like Mobileye for ADAS chips, and replacing these with in-house chips in the short term is risky. Rapid market evolution necessitates prioritizing product performance and competitiveness over risky, unproven in-house solutions.

Hyundai Motor Group's strategic focus has shifted to electric vehicles and full-chain integration, such as investing in battery factories and EV production facilities in the U.S.

With limited funds and resources, the Semiconductor Strategy Division failed to demonstrate direct contributions to Hyundai's core business, making continued high-level support difficult.

Part 2

Hyundai's Next Move After Dissolution

Hyundai's dissolution of its Semiconductor Strategy Division doesn't mean abandoning the automotive chip business entirely; rather, it shifts to a more pragmatic and flexible strategy.

◎ Adopting a "Win-Win Cooperation" Approach: Firstly, deepening foundry collaborations, Hyundai is discussing 5nm chip production with Samsung Electronics and considering TSMC, leveraging foundry advantages to control costs and stabilize the supply chain;

◎ Secondly, strengthening external technical support. Post-dissolution, R&D will shift to the Advanced Vehicle Platform (AVP) department, potentially relying more on external chip vendors like Mobileye to maintain autonomous driving and ADAS competitiveness;

◎ Thirdly, adjusting internal resource allocation. Under the "software-defined vehicles" trend, investing more in automotive underlying software and platform architecture, focusing on projects with long-term strategic significance.

● Choosing the "Win-Win Cooperation" Strategy

◎ Deepening Foundry Collaborations: Hyundai is discussing 5nm chip production with Samsung Electronics and evaluating TSMC, aiming to reduce costs through local manufacturing and maintain supply chain stability, leveraging foundry advantages and avoiding product obsolescence from failed in-house development.

◎ Strengthening External Technical Support: Post-dissolution, Hyundai will assign R&D to the AVP department and may rely more on external chip suppliers like Mobileye to ensure continued autonomous driving and ADAS competitiveness.

◎ Adjusting Internal Resource Allocation: Hyundai will invest more in automotive underlying software and platform architecture, recognizing that under the "software-defined vehicles" trend, building underlying software and ecosystems is more strategically significant than chip development.

Hyundai's dissolution decision indicates a future focus on core businesses like vehicle manufacturing, platform development, and new energy technologies.

Amidst the electrification trend, Hyundai must enhance EV market competitiveness rather than divert resources to the high-threshold, competitive semiconductor field. It may expand partnerships with leading international chip manufacturers through joint development and technology sharing.

Hyundai may also explore customized chip solutions for specific areas (like low-cost control units) to meet diverse vehicle needs and transition from product to solution competition by building a software-hardware integrated ecosystem, enhancing vehicle intelligence, electrification, and user experience in charging networks and connected vehicles.

● Hyundai Motors' Future Efforts:

◎ Deep Collaboration with External Supply Chains: Leveraging foundries and external chip vendors for rapid product implementation.

◎ Enhancing Software R&D Capabilities: Investing more in underlying software and platform architecture to build a robust technical ecosystem.

◎ Ensuring Core Business Leadership: Focusing resources to improve new energy vehicle competitiveness and consolidate global EV market leadership.

Summary

Hyundai Motors' dissolution of its Semiconductor Strategy Division, while abrupt, reflects a clear understanding of its technical capabilities, resource allocation, and market demand. While unable to replicate Tesla's chip success, Hyundai has chosen a flexible cooperation model, gaining more development space.

In the global automotive industry's electrification and intelligence transition, Hyundai's adjustment is a pragmatic, necessary strategic choice. Its future market success hinges on core area execution and innovation.