What China lacks in car manufacturing companies is in component manufacturing enterprises
2024-05-15
Although China has been the global automotive market for 9 consecutive years and its market share is close to half, the Chinese automotive industry is still weak.
Starting from the official large-scale entry of family sedans into the atrium in the millennium, China's automotive industry has also been positioned as the world's largest automotive industry in just a few years, driven by the huge domestic demand in the Chinese market. Behind this is the prosperity of the entire basic industry driven by the entire automotive industry. The annual production and sales volume exceeding 25 million vehicles is not something that anyone can achieve with just a little effort.
Currently, local products have reached a considerable level both in terms of product and market. On the road to catching up with joint venture products, the local speed is not slow. However, even so, China's automotive industry and its domestic market still lack the ability to achieve self healthy development, and there is still a long way to go before they become strong.
This problem lies in the parts industry. It can be said that there is not yet a strong enough component system in China's entire automotive industry system to support the development of Chinese automobiles.
In March of this year, the 2017 Global Top 100 Automotive Parts Suppliers List was officially released. Surprisingly, Germany's Bosch Group continued to rank with a revenue of over 46 billion US dollars, while German gearbox supplier ZF rose to second place. The ranking of component companies from third to tenth is Magna, Dianzhuang, Continental, Aisin, Hyundai Mobis, Fogia, and Lear, respectively.
If we look at the corresponding countries of the top ten automotive parts companies, we will find that they correspond to Germany, the United States, Japan, South Korea, and Canada. Except for Canada, the other major automobile exporting countries are all dominated by outward oriented industries. And Canada's Magna Group, fundamentally speaking, is also rooted in the North American automotive industry system.
In this ranking, the highest ranked Chinese component company is Yanfeng Automotive Interior Systems, followed by CITIC Daika, which ranks 71st. It is worth noting that China's shortlisted component companies mainly focus on single components, such as the main product of CITIC Daika, which is the wheel hub.
Bosch, Magna, and Denso are comprehensive component companies that cover all four major components of the vehicle, including power, chassis, body, and electrical components. Magna can even provide complete vehicle development and production support to OEMs. For example, the whole vehicle development of Guanzhi was done by Magna.
Unfortunately, so far, there has not been a comprehensive automotive component supplier within China's automotive industry. By comparison, it is clear at a glance that China's component industry is weak.
So, after making significant progress in recent years in the local market, we often see that the international supplier system is placed on the quality promotion page in the local market. This matter is also quite helpless - without an independent and independent component system support, no matter how good the local car model is, it can only be like assembling a computer, which is difficult to climb up, and it is even more difficult to talk about an export-oriented industrial system.
The importance of components has actually been around since the 1980s when the market was traded for technology.
We must admit that the development strategy of exchanging market for technology in the automotive industry was formulated from the beginning, with a very good starting point and implementation steps. So, in several early cooperation cases, very high requirements were put forward for the localization rate of components. Shanghai Volkswagen, which had achieved an early increase in the proportion of domestically produced components, survived, while Guangzhou Peugeot, which had always held onto CKD, became history.
This period can basically be seen as the establishment of China's parts industry system, because Santana's domestic production and the establishment of some low-end local automotive parts systems in the Yangtze River Delta have also formed the cornerstone of local parts enterprises at present.
For example, the current domestic automotive exterior rearview mirror supplier Lv Xiang, as well as the glass supplier Fuyao, all grew up at that time.
So, the establishment of a modern domestic automotive parts supplier system in China was not very normal from the beginning.
As time entered the 21st century, with the arrival of the second round of joint venture fever, foreign automotive parts companies began to follow the entry of host factories into the domestic market and began the second round of development in the parts industry. In this era, the components of the joint venture model CKD began to be put into production domestically. At this time, foreign automotive component companies that come to China have two survival states in China.
The first type is a joint venture with large state-owned automobile enterprises such as FAW, SAIC, and Dongfeng, established mainly as joint venture parts enterprises with these state-owned automobile enterprise groups. This can be seen as being built under pressure, so the scale is often not large.
The second type is a subsidiary established solely by foreign automotive parts companies in China. Unlike the whole vehicle manufacturing industry, there are no regulations on the shareholding ratio and number of companies in automotive parts enterprises. So, depending on the different business sectors, foreign-owned component enterprise branches are located in all parts of the country where cars can be manufactured. Among them, the density of the Yangtze River Delta is high, followed by the Pearl River Delta.
The important issue is that most of the parts supplied by these wholly-owned automotive parts companies are black box components with high cost and technological content in the entire vehicle. For example, Takada's airbags, Bosch's electronic control, Aisin's gearbox, and so on. Compared to Fuyao's glass, the requirements for vehicle performance matching are much higher when developed. These are not only the selling points that are heavily promoted locally, but also the weaknesses of the local market.
What is the impact on the local market if the components are not properly controlled?
I remember when WEY VV7 was launched, Wei Jianjun, Chairman of Great Wall Motors, mentioned the full LED headlight assembly of VV7 in an interview. At that time, the manufacturer quoted 8000 yuan, which was difficult to accept. Later, Great Wall Motors made this headlight assembly themselves.
To be honest, the price of 8000 yuan for the local market is reasonable, and it can even be said that this price is not expensive for Great Wall. If it were to switch to another small local market, the supply price would probably increase slightly. However, for the same LED headlights, if given to the same joint venture, at least a 50% discount can be offered.
On the one hand, it is because the products produced by joint ventures do not need to bear the sharing of development costs, after all, products within the same industry system have already been developed globally. We only need production here.
On the other hand, due to the fact that most mainstream automotive component companies abroad have a certain degree of cross shareholding with the automotive companies in their respective countries, the cost of such components can be easily absorbed by the automotive companies themselves. For example, Toyota's Aisin Precision Machine.
It is obvious that relying heavily on foreign component systems will make costs an important weakness that constrains local profit margins. The reason why Great Wall Motors can launch high-quality WEY products at low prices is not only due to its own sense of volume, but also due to its independent component development capabilities, which is an important guarantee.
The second issue is the architecture system of the entire vehicle. Although we say that the automotive industry is becoming more internationalized, there are still differences within the four major automotive industry systems of Germany, Japan, South Korea, and the United States.
For example, for German cars, the headlight switch needs to be placed on the dashboard, while for Japanese cars, it needs to be placed on the lever. This is not a matter of the high or low cost of which structure, but rather which form is suitable for low-cost operation, and similarly, the anti human knob adjustment backrest angle structure of the Volkswagen series. So, this also means that car models under different industrial systems have their own unique personalities.
China's domestic cars are clearly a bit chaotic now. In the early stages, they followed the Japanese approach to engineering, and in the later stages, they followed the European approach to creating design sections. By piecing together a large number of core component suppliers, local vehicle development will encounter more matching problems. For example, how can Bosch's electronic control equipment encounter the actuator of the electrical installation without any problems?
I remember when WEY launched the VV7, what impressed me was not the WEY VV7 itself, but the R&D and production departments of Great Wall were able to create such a brand new LED headlight themselves. Nowadays, many people discuss why WEY is successful from various perspectives, but they forget one thing: they can make components.
Starting from the official large-scale entry of family sedans into the atrium in the millennium, China's automotive industry has also been positioned as the world's largest automotive industry in just a few years, driven by the huge domestic demand in the Chinese market. Behind this is the prosperity of the entire basic industry driven by the entire automotive industry. The annual production and sales volume exceeding 25 million vehicles is not something that anyone can achieve with just a little effort.
Currently, local products have reached a considerable level both in terms of product and market. On the road to catching up with joint venture products, the local speed is not slow. However, even so, China's automotive industry and its domestic market still lack the ability to achieve self healthy development, and there is still a long way to go before they become strong.
This problem lies in the parts industry. It can be said that there is not yet a strong enough component system in China's entire automotive industry system to support the development of Chinese automobiles.
In March of this year, the 2017 Global Top 100 Automotive Parts Suppliers List was officially released. Surprisingly, Germany's Bosch Group continued to rank with a revenue of over 46 billion US dollars, while German gearbox supplier ZF rose to second place. The ranking of component companies from third to tenth is Magna, Dianzhuang, Continental, Aisin, Hyundai Mobis, Fogia, and Lear, respectively.
If we look at the corresponding countries of the top ten automotive parts companies, we will find that they correspond to Germany, the United States, Japan, South Korea, and Canada. Except for Canada, the other major automobile exporting countries are all dominated by outward oriented industries. And Canada's Magna Group, fundamentally speaking, is also rooted in the North American automotive industry system.
In this ranking, the highest ranked Chinese component company is Yanfeng Automotive Interior Systems, followed by CITIC Daika, which ranks 71st. It is worth noting that China's shortlisted component companies mainly focus on single components, such as the main product of CITIC Daika, which is the wheel hub.
Bosch, Magna, and Denso are comprehensive component companies that cover all four major components of the vehicle, including power, chassis, body, and electrical components. Magna can even provide complete vehicle development and production support to OEMs. For example, the whole vehicle development of Guanzhi was done by Magna.
Unfortunately, so far, there has not been a comprehensive automotive component supplier within China's automotive industry. By comparison, it is clear at a glance that China's component industry is weak.
So, after making significant progress in recent years in the local market, we often see that the international supplier system is placed on the quality promotion page in the local market. This matter is also quite helpless - without an independent and independent component system support, no matter how good the local car model is, it can only be like assembling a computer, which is difficult to climb up, and it is even more difficult to talk about an export-oriented industrial system.
The importance of components has actually been around since the 1980s when the market was traded for technology.
We must admit that the development strategy of exchanging market for technology in the automotive industry was formulated from the beginning, with a very good starting point and implementation steps. So, in several early cooperation cases, very high requirements were put forward for the localization rate of components. Shanghai Volkswagen, which had achieved an early increase in the proportion of domestically produced components, survived, while Guangzhou Peugeot, which had always held onto CKD, became history.
This period can basically be seen as the establishment of China's parts industry system, because Santana's domestic production and the establishment of some low-end local automotive parts systems in the Yangtze River Delta have also formed the cornerstone of local parts enterprises at present.
For example, the current domestic automotive exterior rearview mirror supplier Lv Xiang, as well as the glass supplier Fuyao, all grew up at that time.
So, the establishment of a modern domestic automotive parts supplier system in China was not very normal from the beginning.
As time entered the 21st century, with the arrival of the second round of joint venture fever, foreign automotive parts companies began to follow the entry of host factories into the domestic market and began the second round of development in the parts industry. In this era, the components of the joint venture model CKD began to be put into production domestically. At this time, foreign automotive component companies that come to China have two survival states in China.
The first type is a joint venture with large state-owned automobile enterprises such as FAW, SAIC, and Dongfeng, established mainly as joint venture parts enterprises with these state-owned automobile enterprise groups. This can be seen as being built under pressure, so the scale is often not large.
The second type is a subsidiary established solely by foreign automotive parts companies in China. Unlike the whole vehicle manufacturing industry, there are no regulations on the shareholding ratio and number of companies in automotive parts enterprises. So, depending on the different business sectors, foreign-owned component enterprise branches are located in all parts of the country where cars can be manufactured. Among them, the density of the Yangtze River Delta is high, followed by the Pearl River Delta.
The important issue is that most of the parts supplied by these wholly-owned automotive parts companies are black box components with high cost and technological content in the entire vehicle. For example, Takada's airbags, Bosch's electronic control, Aisin's gearbox, and so on. Compared to Fuyao's glass, the requirements for vehicle performance matching are much higher when developed. These are not only the selling points that are heavily promoted locally, but also the weaknesses of the local market.
What is the impact on the local market if the components are not properly controlled?
I remember when WEY VV7 was launched, Wei Jianjun, Chairman of Great Wall Motors, mentioned the full LED headlight assembly of VV7 in an interview. At that time, the manufacturer quoted 8000 yuan, which was difficult to accept. Later, Great Wall Motors made this headlight assembly themselves.
To be honest, the price of 8000 yuan for the local market is reasonable, and it can even be said that this price is not expensive for Great Wall. If it were to switch to another small local market, the supply price would probably increase slightly. However, for the same LED headlights, if given to the same joint venture, at least a 50% discount can be offered.
On the one hand, it is because the products produced by joint ventures do not need to bear the sharing of development costs, after all, products within the same industry system have already been developed globally. We only need production here.
On the other hand, due to the fact that most mainstream automotive component companies abroad have a certain degree of cross shareholding with the automotive companies in their respective countries, the cost of such components can be easily absorbed by the automotive companies themselves. For example, Toyota's Aisin Precision Machine.
It is obvious that relying heavily on foreign component systems will make costs an important weakness that constrains local profit margins. The reason why Great Wall Motors can launch high-quality WEY products at low prices is not only due to its own sense of volume, but also due to its independent component development capabilities, which is an important guarantee.
The second issue is the architecture system of the entire vehicle. Although we say that the automotive industry is becoming more internationalized, there are still differences within the four major automotive industry systems of Germany, Japan, South Korea, and the United States.
For example, for German cars, the headlight switch needs to be placed on the dashboard, while for Japanese cars, it needs to be placed on the lever. This is not a matter of the high or low cost of which structure, but rather which form is suitable for low-cost operation, and similarly, the anti human knob adjustment backrest angle structure of the Volkswagen series. So, this also means that car models under different industrial systems have their own unique personalities.
China's domestic cars are clearly a bit chaotic now. In the early stages, they followed the Japanese approach to engineering, and in the later stages, they followed the European approach to creating design sections. By piecing together a large number of core component suppliers, local vehicle development will encounter more matching problems. For example, how can Bosch's electronic control equipment encounter the actuator of the electrical installation without any problems?
I remember when WEY launched the VV7, what impressed me was not the WEY VV7 itself, but the R&D and production departments of Great Wall were able to create such a brand new LED headlight themselves. Nowadays, many people discuss why WEY is successful from various perspectives, but they forget one thing: they can make components.
