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Overview and Development Trend Analysis of the Automotive Parts Industry

Release time:

2017-08-18

I. Industry Overview The auto parts industry, as an upstream industry of the automobile manufacturing industry, is the foundation of the development of the automobile industry. Its upstream industries are mainly steel, petroleum, non-ferrous metals, natural rubber, fabrics and other materials industries, and its downstream industries are mainly vehicle assembly and maintenance service industries. The development of the auto parts industry mainly depends on the development of the downstream vehicle market and service and maintenance market. In recent years, with the rapid development of the vehicle consumer market and service and maintenance market, China's auto parts industry has developed rapidly, and its development trend is good, constantly transforming and upgrading, and shifting towards specialization. According to the China Association of Automobile Manufacturers

I. Industry Overview

　　As an upstream industry of the automotive industry, the automotive parts industry is the foundation of the development of the automotive industry. Its upstream industries are mainly steel, petroleum, non-ferrous metals, natural rubber, fabrics and other materials industries, and its downstream industries are mainly vehicle assembly and maintenance service industries. The development of the automotive parts industry mainly depends on the development of the downstream vehicle market and service and maintenance market. In recent years, with the rapid development of the vehicle consumer market and service and maintenance market, China's automotive parts industry has developed rapidly, and the development trend is good, constantly transforming and upgrading, and shifting towards specialization.

　　According to statistics from the China Association of Automobile Manufacturers, in 2013, China's automobile production and sales both exceeded 21 million vehicles. A total of 22,116,800 vehicles were produced throughout the year, a year-on-year increase of 14.76%; 21,984,100 vehicles were sold, a year-on-year increase of 13.87%. In 2013, China's automobile market continued the development trend of 2012 and maintained steady growth. Automobile production and sales showed steady growth, the production and sales scale of large enterprise groups increased overall, and the automobile industry structure was further optimized.

　　Data from the Traffic Management Bureau of the Ministry of Public Security shows that the number of vehicles in China maintained rapid growth in 2013. By the end of 2013, the total number of motor vehicles nationwide exceeded 250 million, of which 137 million were cars. Excluding scrapped vehicles, an increase of 16.51 million vehicles, an increase of 13.7%, accounting for 54.9% of all motor vehicles. There are 31 cities nationwide with more than 1 million vehicles, including Beijing, Tianjin, Chengdu, Shenzhen, Shanghai, Guangzhou, Suzhou, and Hangzhou. Eight cities have more than 2 million vehicles, and Beijing has more than 5 million vehicles.

　　China's huge vehicle consumer market and the significant increase in vehicle ownership are attracting more and more international automotive parts giants to enter China. At present, China's automotive parts industry has formed five major sectors: the Bohai Rim region, the Yangtze River Delta region, the Pearl River Delta region, the Hubei region, and the central and western regions. The entire industry is showing rapid growth, and the strength of some domestic automotive parts companies has greatly improved, and some companies with global competitiveness in niche markets have emerged.

　　At the end of 2013, Roland Berger Management Consulting published the "Global Automotive Parts Supplier Research Report 2013". The report shows that the profitability of the global automotive parts supply industry remains stable at a high level. Data shows that the pre-tax profit margin in 2012 and 2013 was both 6.5%. The most profitable areas for suppliers are chassis, powertrain and tires, while the profit in the interior parts sector will further shrink. High technical content and high added value bring high profits, which are prominently reflected in the chassis, powertrain and tire industries. This means that the automotive aftermarket is huge, and profits continue to climb. Many products, such as tires, have much higher profits in the aftermarket than in the vehicle market. Driven by profits, international parts companies such as Bosch, Denso, and Continental are also accelerating their entry into China's aftermarket.

　　According to the third-quarter reports of 74 parts companies listed on the Shanghai and Shenzhen stock exchanges at the end of 2013, the total operating income of the 74 automotive parts companies was approximately 252.238 billion yuan, and more than 70% of the companies' operating income showed stable year-on-year growth. This shows that the current profit of Chinese suppliers is relatively high, but there are also many challenges in the future.

II. Development Trends

　　1. Further optimization of the strategic relationship between OEMs and parts suppliers

　　The OEM-parts supplier relationship in the global automotive industry is divided into three categories: 1. The parallel development model represented by Europe and the United States. Parts companies are independent of vehicle companies, and parts companies compete freely; 2. The tower model represented by Japan and South Korea, where vehicle and parts companies are communities of interest and have strong capital cooperation relationships; 3. The planned economy model of FAW and Dongfeng in early China, where parts are subordinate to vehicle companies. This model still exists in some Chinese companies. However, the OEM-parts supplier relationship is not static. Now, European and American companies also particularly emphasize the cooperation between vehicle manufacturers and parts suppliers; in Japanese and South Korean vehicle companies, there is also a tendency to procure parts globally. Now, vehicle manufacturers are making increasingly higher demands on parts suppliers. In the future, the parts companies required by vehicle manufacturers will not be traditional parts suppliers, but suppliers who can provide system solutions to vehicle manufacturers, especially with very high requirements for the supplier's system integration capabilities and innovation capabilities. This requires parts companies to cooperate closely with vehicle manufacturers in the early stages of advanced technology development, and to support each other in business development. In the long-term strategy, they have a relationship of co-creating the future, creating a harmonious development environment and broad space for OEMs and parts companies.

　　2. The development of new energy vehicles will promote the transformation and upgrading of the automotive parts industry

　　On February 8, 2014, the Ministry of Finance and other ministries and commissions of China jointly issued a document clarifying that the current subsidy promotion policy will be implemented until December 31, 2015, and adjustments will be made to the subsidy standards for 2014 and 2015. The central government will continue to implement the subsidy policy to maintain policy continuity and increase support to promote the application of new energy vehicles and promote energy conservation and emission reduction. At the same time, the Ministry of Finance recently also announced the second batch of cities for the promotion and application of new energy vehicles, supporting 12 cities or regions, including Shenyang and Changchun, to carry out the promotion and application of new energy vehicles. Based on the calculation that the cumulative promotion volume of a single city or region is no less than 5,000 vehicles, it is estimated that the newly added promotion scale in the next two years will be about 60,000 to 80,000 vehicles. In addition to the cumulative promotion volume of 250,000 vehicles in the first batch of demonstration cities, the cumulative promotion scale of new energy vehicles in the next two years will exceed 300,000 vehicles. Even considering factors such as policy implementation intensity, the compound annual growth rate of new energy vehicle sales in the next 2-3 years is expected to exceed 100%. This policy will actively promote the transformation and upgrading of the automotive parts industry, promote the development of the parts industry towards energy-saving and environmentally friendly, high-tech and high-quality types, and actively promote the construction of brand strategies and the path of international development.

　　3. Upgrading of high-end manufacturing in the parts industry

　　With the gradual maturity of the domestic automobile market, consumers' requirements for product quality have also increased, and OEMs' requirements for the technical strength and production management capabilities of parts suppliers have become stricter. The implementation of policies such as the "three guarantees" for automobiles has increased the risks for OEMs and parts suppliers when product quality problems occur. Parts companies with stronger R&D capabilities and higher management levels will stand out in the competition. Although the overall competitiveness of the domestic automotive parts industry is still lagging behind international giants, domestic parts companies have made breakthroughs in some sub-sectors, and a wider global parts supply market has been opened.

　　With the increasing requirements for automobile safety, comfort, and environmental protection, automobile intelligence has become a major trend in the development of the automobile industry. How to improve the safety and comfort of automobile use through electronic technology has also become a hot topic in the entire industry. According to the forecast of Topology Industry Research Institute, with the maturity of 4G/LTE and cloud technology, the global automotive electronics industry will explode this year, with a year-on-year increase of 7% in output value, reaching US$205 billion, and maintaining an average growth rate of 8.5% until 2020. At present, most of the core technologies of automotive electronics are in the hands of international parts giants. Automotive electronics have become the weakest link in China's automotive industry's technological strength. Due to the high development difficulty and high requirements for product quality stability, most of the domestic market is occupied by foreign capital, and independent brands only occupy a place in low-end markets such as in-vehicle navigation and audio-visual playback.

III. Challenges Faced

　　1. The quality of China's brand automotive parts needs further improvement

　　After years of development, the quality of Chinese-brand auto parts has greatly improved. However, there is still a gap between the quality level of Chinese-brand auto parts and that of foreign companies, especially in terms of product consistency and reliability, which need further improvement. Because some Chinese auto parts companies are still in the stage of extensive traditional management and production methods, lacking research and continuous improvement of process systems, insufficient process control capabilities, unstable quality, and poor product consistency, it is difficult to produce high-quality products. For auto parts companies to develop, they must not only focus on product technology innovation but also put more effort into product quality.

　　Industry development is driven by standards. The standards in the auto parts industry have been continuously improved in recent years, giving people hope for the healthy and orderly development of the industry. A number of favorable policies introduced in 2013 have also strongly promoted the development of auto parts remanufacturing. On August 26, 2013, five ministries and commissions issued the "Pilot Implementation Plan for the Exchange of Old for Remanufactured Products," announcing the launch of a pilot program for exchanging old products for remanufactured ones, with remanufactured engines and transmissions as key projects. On September 16, the Beijing-Tibet trip of remanufactured auto parts began, using actual road tests to verify the quality of remanufactured auto parts. On November 21, the Ministry of Industry and Information Technology issued the "Remanufacturing Promotion Plan for Internal Combustion Engines." At the same time, many industry standards for auto parts were released or specified in 2013. On March 1, the national standard "Performance Requirements and Test Methods for Passenger Car Tire Pressure Monitoring Systems (TPMS)" was publicly solicited for comments. In addition, the national standard for airbags has been basically completed, and the mandatory standard for in-vehicle air quality will be implemented in 2015.

　　2. Domestic auto parts companies need to further improve their core technologies

　　Product technology strength is a core element for companies to participate in market competition. The strength of foreign auto parts companies comes from huge R&D investment and continuous technological innovation, which domestic companies have always lacked. Currently, domestic auto parts suppliers generally adopt a "drawing processing" model, where auto manufacturers provide product data and drawings to suppliers, who then manufacture according to the drawings. Most companies do not fully master core technologies, and their products are mostly mid-to-low-end, with few high-end products; in terms of automotive electronic and electrical control technology, especially in terms of power systems, fuel consumption, emissions, and safety-related electronic control components, technology lags behind, and some areas are blank. In the face of the future trend of diversified automotive energy development and increasingly stringent requirements for energy saving, environmental protection, and safety, auto parts companies are required to not only have basic development capabilities but also advanced technological development capabilities. Therefore, the technological development capabilities of auto parts companies will face greater challenges.

　　However, with the intensification of competition in the auto parts market, domestic auto parts companies have gradually increased their R&D investment in new products and technologies. According to data on R&D investment from the 2012 annual reports of the top 30 auto parts listed companies compiled by China Automotive News, the average proportion of R&D investment to operating revenue for most companies was 2.70%, with an average investment of 244 million yuan. Among them, Weichai Power's R&D investment accounted for 4.14% of operating revenue, with a total amount of 1.996 billion yuan. Yunneng Power's R&D investment in 2012 increased by 22.15% year-on-year, and it also increased investment in R&D projects such as the D25TCI electronic control common rail project and the development of Euro 5 diesel engines. The direct result of increased R&D investment is that in recent years, many new technologies and products have emerged in the auto parts industry, such as in-cylinder direct injection technology, electronic control high-pressure common rail technology, dual-clutch transmission technology, etc. In recent years, turbocharging technology has also been continuously improved.

　　China's auto industry is in an important period of development, and building a strong automotive nation will become a national development strategy. Green, environmental protection, efficiency, and safety are the trends in the development of the auto industry. To achieve the transformation and upgrading of the auto industry and improve the overall development level of the auto industry, China has proposed to vigorously develop the energy-saving and new energy vehicle industry. China's auto parts industry must work together with the entire auto industry to transform and develop. In the coming period, it will focus on auto parts development strategies, transformation and upgrading, policy research, technological innovation, standards and regulations, collaboration between automakers and parts suppliers, the construction of common platforms, industrial internationalization, the development of industrial clusters, and practical industry services.