South Korea's Hyundai Motor Group has initiated a project aimed at significantly boosting the local production and procurement of automotive semiconductors from early this year, according to industry sources on Friday.

Challenges stemming from the auto group's heavy reliance on international suppliers for its semiconductor needs, such as supply chain vulnerabilities exposed during the global pandemic, are expected to be resolved through the initiative. Over 90 percent of Hyundai's auto chips demand is dependent on imports.

Hyundai Motor has reportedly been engaging in partnership discussions with Korea-based fabless semiconductor companies, which specialize in chip design but outsource their manufacturing.

The Korean automaker’s selection criteria for its fabless partners are stringent, focusing on firms with robust local roots, annual sales of more than 100 billion won ($75 million), and a track record of supplying Hyundai.

By delegating the semiconductor design to these firms and subjecting the outcomes to rigorous testing and verification, Hyundai is expecting to ensure only the highest quality chips manufactured by domestic foundries are integrated into its vehicles.

This collaboration model enables Hyundai to circumvent the extensive investments and time required for independent semiconductor development.

Hyundai will reportedly commission the design of semiconductors to these fabless firms, which, upon passing the quality control tests, will be manufactured by local foundries and then supplied directly to Hyundai. This not only streamlines the production process but also enhances the efficiency and reliability of the supply chain.

Hyundai's project is also strategically vital as the industry shifts towards electric and autonomous vehicles, which require over 2,000 semiconductors each -- more than a tenfold increase compared to traditional internal combustion engine vehicles.

Increasing domestic semiconductor production is expected to give Hyundai greater negotiating power with global suppliers. The global automotive semiconductor market, currently dominated by a few European and Japanese companies such as Infineon, NXP, Renesas, and STMicroelectronics, has been a headache for Hyundai due to its oligopolistic nature. The scarcity of automotive chips during the pandemic led to skyrocketing prices and significant operational disruptions.

Enhancing local production capabilities will likely provide Hyundai with advantages in pricing, delivery schedules, and after-sales support over international suppliers.

In June last year, Hyundai already took a step in this strategic direction by announcing its plan to source semiconductors for infotainment systems from Samsung Electronics starting in 2025. Samsung Electronics said that its Exynos Auto processors deliver enhanced in-vehicle infotainment capabilities, including real-time driving information and high-quality multimedia streaming.