2024 is coming to an end. For the A-share auto parts giants, it is highly likely that domestic auto production and sales will reach a new high this year, and the company's performance is expected to benefit from it.
At the same time, as the auto industry accelerates its internal circulation, the demand for electric vehicles in Europe and the United States slows down, cost reduction and efficiency improvement, structural competition, annual bargaining, and overseas factory construction... These words constitute the indisputable cruel "realism" of the auto parts industry in 2024.
As one of the few industries with a revenue scale of over 10 billion and continued double-digit growth, the reality of the auto parts industry is also difficult to describe.
"Annual reduction" has become the "big drama" of the auto industry at the end of the year
In recent years, as the price war between automakers has become more and more fierce, annual reduction has quietly become the "big drama" of the domestic auto industry at the end of the year.
Gasgoo's "supply chain cost reduction" industry survey data shows that the cost reduction requirements put forward by automakers in 2023 have increased significantly, and more than half of the companies have been required to "annual reduction" by 5% to 10%. Many industry insiders told Cailianshe reporters that the current 5% annual decline is at the median level of the auto parts industry.
At present, the pressure to reduce prices is spreading along the automotive industry chain. Fute Technology (301607.SZ), a well-known supplier of core components for high-voltage power supplies for new energy vehicles in the industry, mentioned in its prospectus: In order to cope with competition in the new energy vehicle industry, it actively promotes cost reduction and efficiency improvement, reduces production costs through supplier price reduction negotiations, and improves gross profit margins.
Zhang Xiang, director of the Vodafone Digital Automotive International Cooperation Research Center, told Cailianshe reporters that "the annual price negotiation between vehicle manufacturers and suppliers is a common practice in the domestic automotive industry. This is a market behavior that neither the government nor industry associations can intervene. The fundamental reason is that the domestic auto parts industry has an overall overcapacity."
According to Choice data, in the first three quarters of 2024, the top ten companies in the A-share auto parts industry by market value are Fuyao Glass (600660.SH), Weichai Power (000338.SZ), Top Group (601689.SH), Desay West The net profit margins of Weiwei (002920.SZ), Huayu Automotive (600741.SH), Sailun Tire (601058.SH), Wanfeng Aowei (002085.SZ), Xingyu Shares (601799.SH), Linglong Tire (601966.SH), and Sentury (002984.SZ) were 19.37%, 6.39%, 11.59%, 7.47%, 4.28%, 13.96%, 6.48%, 10.59%, 10.73% and 27.22% respectively.
The aforementioned head suppliers still have a certain voice in the industrial chain, while small suppliers with weak voice can only be forced to choose to cut prices for the automotive aftermarket and market share. Cailianshe reporters learned that some small supplier companies are already on the verge of losses.
Zhang Xiang further stated that the concentration of China's automobile industry is not high enough at present, with more than 100 automobile companies. When the number of domestic automobile companies is reduced to 20-30, the industry structure can be stabilized and the annual decline may stop. Now automobile companies are in the reshuffle stage, which passes the pressure of price reduction to upstream suppliers, and the auto parts industry will be under great pressure. For the industry to develop with high quality, it must eliminate backward production capacity, and this reshuffle process is inevitable. It is expected that the annual decline in the auto parts industry will continue next year, but the decline is difficult to predict.
In the view of Jia Guangyi, chairman of Nanjing Jinyou Private Equity Fund Management Co., Ltd. (hereinafter referred to as "Jinyou Private Equity"), the annual bargaining reduction between vehicle manufacturers and suppliers cannot exceed 10%. "As far as the domestic automobile industry chain is concerned, everyone's profit margin is actually not large, especially when the overall manufacturing industry is not in a downturn. If the annual decline is too large, it will affect industry innovation, employment of practitioners and even the survival of suppliers."
In addition, the back-end market of auto parts is also not doing well. "Business is not good" is the most frequently heard sentence by Cailianshe reporters in a certain auto parts hardware market in Hangzhou recently.
An auto parts store owner told reporters that at the beginning of the year, he had already anticipated that business would be more difficult this year, but the market downturn still exceeded expectations. What he couldn't figure out was: Why is it that with more and more cars now, the auto parts business is becoming more and more difficult?
It is expected that the number of auto parts exported overseas will continue to grow in 2025
According to statistics from the China Association of Automobile Manufacturers, China will export 4.91 million vehicles in 2023, a year-on-year increase of 57.9%, making it the world's largest automobile exporter. With the rapid development of China's automobile exports, the pace of auto parts companies' "going overseas" is also accelerating, setting off a wave of overseas factory construction.
According to incomplete statistics, since 2024, many auto parts listed companies such as Songyuan Shares (300893.SZ), Hexing Shares (605005.SH), Kabei (300863.SZ), Hongte Technology (300176.SZ), Rongtai Shares (605133.SH), Zhongyuan Internal Parts (002448.SZ), and Guoxuan High-tech (002074.SZ) have announced their investment and construction of production bases overseas. In addition, auto parts companies such as Xinquan Shares (603179.SH), Minth Group (00425.HK), Wanfeng Aowei, Joyson Electronics (600699.SH), and Wencan Shares (603348.SH) have achieved mass production in Mexico.
It is generally believed in the industry that as the domestic automobile market enters the stage of structural competition, "going overseas" is expected to bring new development opportunities for domestic auto parts listed companies. In Zhang Xiang's view, the "going overseas" of auto parts companies will not only help expand the company's market share, but also help domestic related companies enter the procurement chain of multinational companies.
Expert Market Research data shows that the global auto parts market size in 2020 is about 380 billion US dollars, and it is expected to grow to 453 billion US dollars by 2026, with an average annual compound growth rate of 2.97%. According to the data of the General Administration of Customs compiled by the China Association of Automobile Manufacturers, from January to September 2024, the cumulative export value of auto parts products reached 78.2 billion US dollars, a year-on-year increase of 4.6%.
Zhang Xiang said that it has become a must for Chinese auto companies to enter the broader international market, and auto companies cannot go overseas without the support of the supply chain, which also brings opportunities for domestic auto parts suppliers to go overseas. "It is difficult and risky for auto parts companies to go overseas alone, but since this year, domestic auto parts suppliers have obviously participated in overseas auto shows more actively than before. It is expected that the number of auto parts companies going overseas will only increase in 2025."
Of course, going overseas is only the first step for auto parts companies to go global. How to "take root" in the local area is the biggest test for Chinese companies going overseas. Zhang Xiang believes that the safest way for auto parts manufacturers to go overseas is to "partner" with domestic automobile OEMs to complement each other; after gaining a foothold overseas, they will expand the market to local countries and obtain more orders from neighboring countries.
"In the past two years, auto parts companies have indeed been very popular in going overseas, but whether they can take root in the local area remains to be seen. Some auto parts manufacturers have followed downstream vehicle manufacturers to go overseas, but they have not yet enjoyed the premium of going overseas." Jia Guangyi said, "At present, the most complete and high-quality automobile industry clusters in the world are in China, especially after the development of domestic new energy vehicles, the advantages of the industrial chain are incomparable. One of the important reasons why domestic auto parts manufacturers choose to go overseas is to cater to the needs of local policies. Some of them choose to go overseas out of necessity, some are for gestures, and some may still be on the sidelines."
In fact, it is not easy for auto parts suppliers to "go overseas", and it is even more difficult to take root overseas. Taking Wencan Holdings as an example, the company disclosed for the first time in its 2023 annual report that some of its overseas factories had problems such as delayed product delivery and increased quality costs. In addition, Wencan Holdings' subsidiary also encountered tax payment disputes in Mexico.
Coincidentally, in July this year, Fibocom (300638.SZ) announced that in order to cope with the complex changes in the current international market environment, the company sold the in-vehicle front-end wireless communication module business of Shenzhen Ruiling Wireless Technology Co., Ltd. (hereinafter referred to as "Shenzhen Ruiling"), including some assets and liabilities of Rolling Wireless (H.K.) Limited and 100% equity of Luxembourg Ruiling, for US$150 million. After the transaction is completed, Shenzhen Ruiling and its subsidiaries will no longer engage in in-vehicle front-end wireless communication module business.
