Component Companies Accelerate Transformation
Release Date:
2019-09-23
Is Chinese auto quality lacking? Is the Chinese components industry “fragmented, disorganized, and substandard”? Does it suffer from insufficient core competitiveness? Are OEM–tier-1 supplier relations strained? These questions have once again come to the forefront. In the current period of volatility for China’s automotive industry, do Chinese-brand vehicle manufacturers and component suppliers still have opportunities? Recently, representatives from a number of leading domestic companies in niche segments of the Chinese auto-components industry, along with top leaders from industry associations such as the China Association of Automobile Manufacturers and the Society of Automotive Engineers of China, as well as from research and development institutions, gathered in Weifang, Shandong Province. What kind of breakthroughs will they achieve this time?
To the average consumer, China’s automotive industry associations and research institutions are often unfamiliar—and sometimes even seem aloof. In reality, however, they maintain close ties with vehicle manufacturers and parts suppliers. Key areas that directly affect consumer interests, such as whole-vehicle quality oversight, the practical application of advanced technologies, and policy research, all rely on the impetus provided by these industry platforms.
In China’s automotive industry, there exists an organization known as the “China Automotive Parts Technology Innovation Organization,” abbreviated as “G20,” which brings together several leading domestic enterprises in specific segments of the Chinese auto-parts sector. Recently, the “China Automotive Parts Industry Innovation and Development Forum and the 2019 Annual Meeting of the Society of Automotive Engineers of China G20 Organization” was held as scheduled.
In 2018 and 2019, unprecedented volatility in the global economic environment placed immense pressure on the automotive industry, with the domestic market faring no better. “Based on September’s performance, negative full-year growth for this year is now a foregone conclusion,” stated Fu Yuwu, Honorary Chairman of the China Society of Automotive Engineers, in his address at the conference.
Fu Yuwu revealed that, following numerous meetings and discussions with relevant state agencies and automotive industry organizations, a consensus has emerged: the current downturn in the automotive industry is not a “short-term cycle” but rather a “plateau period.” This suggests that China’s automotive sector may face a protracted phase of negative or low-speed growth lasting approximately three years.
The downward trend has already begun to ripple upstream, as Li Jun, an academician of the Chinese Academy of Engineering and President of the China Society of Automotive Engineers, put it: “If automakers are feeling the chill, then the parts suppliers have already been hit by a freeze.” At present, parts manufacturers are increasingly concerned about their future profitability. During discussions, experts emphasized that Chinese-brand parts companies have long been assessing their own weaknesses while seeking to leverage their strengths in the competitive landscape—particularly the leading firms that have established themselves as pioneers in niche segments.
China’s auto parts industry has long been characterized by three persistent challenges: fragmentation, disorder, and substandard quality; a lack of core competitiveness; and an imbalanced relationship between OEMs and Tier-1 suppliers. In Fu Yuwu’s view, given the current stage of development of China’s automotive industry, it is worth re-examining whether these three “hats” still apply today.
The latest industry survey shows that China now has a total of 100,000 auto-parts companies, including 13,000 with annual revenues exceeding RMB 20 million; among these, 13,000 are joint ventures or wholly foreign-owned enterprises. Fu Yuwu stated: “There are roughly 20,000 domestically and internationally prominent parts suppliers in the industry. In 2013, only one Chinese company made the Global Top 100 Parts Suppliers list, but by 2018 that number had risen to eight. A growing cohort of parts firms is expanding rapidly, and the industry is no longer characterized by fragmentation, disorder, or poor quality.”
According to Fu Yuwu, Chinese companies such as Daido, Joyson Electronics, Weichai, Yanfeng, and Johnson Electric have all become globally recognized enterprises, with their core competitiveness steadily improving. Meanwhile, the relationship between automakers and component suppliers in China is also improving; for instance, independent transmission manufacturers like Shengrui have grown with the support of leading vehicle manufacturers such as JMC.
The ultimate goal of the global technological revolution is “decarbonization,” and automakers have accordingly articulated development directions such as electrification, intelligentization, internationalization, collaboration, sharing, and connectivity. However, for component suppliers, these concepts cannot be simply copied or transplanted. Based on the discussions among experts and industry representatives at this conference, five key areas can be identified.
First is electrification. This has virtually become a shared manifesto for the global automotive industry. “Making electrification the central pillar and pursuing multi-energy substitution is the right choice; in the electrification era, component suppliers must clearly identify and establish their own strategic positioning,” says Fu Yuwu.
Second, intelligence. Recently, one of the key priorities in high-level China–Germany exchanges has been autonomous driving, which is creating rapid growth opportunities for suppliers of radar and other sensors as well as platform providers. Given the long value chain and cross-sectoral nature of the autonomous-driving industry, component manufacturers are sure to identify areas where they can make a significant impact.
Third is internationalization. Within Great Wall Motor, there is a saying: “Great Wall must achieve internationalization—even if we die, we will die in the global market.” Meanwhile, a new EV manufacturer also emphasizes that its ambitions lie in the international arena. Today, both complete-vehicle manufacturers and component suppliers need to pursue international business. Nissan purchases more than RMB 20 billion worth of components from China each year; if domestic firms can supply multinational corporations, they will certainly be able to expand into overseas markets as well.
Fourth, collaborative development. Fu Yuwu stated, “If the upstream and downstream sectors of the automotive industry fail to collaborate and cooperate, how can they achieve win-win outcomes?” Without collaboration among industry, academia, and research institutions, the automotive industry will have no future. Developing electric vehicles requires expertise in electrochemistry, while advancing autonomous driving demands proficiency in big data, radar technology, and imaging technologies; therefore, multi-stakeholder collaborative innovation is the only path to breakthroughs in core technologies.
Fifth, focus on talent acquisition. Most companies that fail in their transformation fail to effectively attract and retain top talent—especially now, when the automotive market is in a unique phase, making it all the more critical for firms to prioritize and nurture scarce, high-caliber talent.
China is currently in a phase of open development, and the automotive industry must also embrace openness. Dong Yang, First Vice President of the Organization Internationale des Constructeurs d’Automobiles (OICA), stated bluntly that half of the growth in the automotive economy is driven by component suppliers; therefore, only by opening up can China’s automotive industry learn even more.
For the first time, the G20 Annual Meeting was held at a component manufacturer—specifically, Shengrui. Shengrui has independently developed an 8-speed automatic transmission that won the First Prize of the National Science and Technology Progress Award; yet its earliest-generation 8AT model, which was initially supplied to Landwind, faced numerous challenges. During his exchange with attendees, Fu Yuwu remarked: “Without Jiangling’s support, there would be no Shengrui as we know it today.” Shengrui’s more than decade-long journey of development serves as a microcosm of the remarkable growth experienced by many outstanding Chinese brands in the components industry.
Chinese auto-parts companies have now passed the most challenging phase: imitation is a thing of the past, and independent innovation has become the dominant theme. The new challenge is how these companies can align their original technologies with the “four transformations” driving the automotive industry and with consumers’ evolving needs. During this period of relative stagnation, parts suppliers must remain patient, continuing to refine and consolidate their capabilities.
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