The parts industry will continue to face pressure, with the automotive supply chain in 2023 and 2024.

In 2023, the Chinese automotive industry moved forward amidst ups and downs, and the parts sector also experienced many memorable events, allowing people to feel the strong pulse of industrial transformation under the new circumstances. This year, automotive parts companies faced challenges; against the backdrop of a sluggish global economy, they needed to work hard to maintain existing business and cash flow. At the same time, facing the rapid transformation of the automotive industry, in order not to fall behind in fierce competition and future contests, parts companies must take the initiative to promote transformation.

2023 under pressure, transforming to survive

The Chinese automotive parts industry is currently in a transformation phase, with companies' main strategies focusing on the localization of core components, continuously expanding investment in the research and development of automotive electronic systems, automotive semiconductor chips, and engine units, and increasing investment amounts in core component manufacturers over the past two years.

However, the decline in the weight of internal combustion engine business means a reduction in related positions. The automotive industry is transitioning to electric vehicles, and car manufacturers continue to cut research and development projects related to internal combustion engine vehicles, leading to overcapacity of related products. Schaeffler announced early on a layoff plan for 1,300 employees. Continental also cut some jobs in its automotive division, laying off thousands to save costs. Faurecia closed a seat factory and laid off more than 500 people. Goodyear laid off 1,200 people in Europe, the Middle East, and Africa. Earlier, ZF also announced plans to close its Gelsenkirchen plant in Germany by the end of 2024, resulting in the loss of about 200 production jobs. Bosch also confirmed plans to lay off 1,500 people to adapt to the continuous changes in automotive technology and demand.

From Schaeffler to Continental, from Bosch to ZF, a number of traditional automotive parts giants slimmed down to survive in 2023. Although many international parts manufacturers are financially strong, they also feel a sense of crisis. They hope to recalibrate their direction and move towards what they believe is the right and profitable path through drastic adjustments and restructuring.

In fact, this year, the automotive market has been swept by a price war, which not only leads to lower product prices but also reflects the cost pressure across the entire automotive industry chain. As the price war in the automotive market intensifies, news of layoffs, salary cuts, and even bankruptcies among vehicle manufacturers has become common. Supply chain companies are also experiencing layoffs, transformations, and shutdowns. Amidst extreme competition, "sales data is hot, but market sentiment is cold" has become a unique phenomenon in this year's automotive market, with the chill transmitted from the market to vehicle manufacturers and then to supply chain companies.

While cutting costs through layoffs, international automotive parts giants are also actively adjusting their business structures to find new profit growth points. The Japanese automotive industry, which has formed a fixed small collective through cross-shareholding for decades, is seeking to loosen these ties. Toyota, Toyota Industries, and Aisin have finalized the sale of some of their shares in Denso; Denso is selling its shares in Hino Motors, Toyota Tsusho, Aichi Steel, and Tokai Rika, and reducing its holdings in Toyota Industries and Aisin. By reducing cross-shareholding, manufacturers can gain greater operational independence while raising funds for the electrification and intelligent transformation of vehicles.

2024 running, seizing new energy

The automotive parts industry is the premise and foundation for the development of the automotive industry and is also an important part of the automotive industry chain. The trend of the automotive parts industry in 2024 is directly linked to the automotive industry.

The government is currently trying various ways to boost consumption, with automotive consumption being a top priority. According to central government requirements, some localities have recently introduced policies to encourage automotive consumption and optimize the automotive usage environment. New energy vehicles are naturally a key focus of encouragement. In 2024, the total sales of new energy vehicles are expected to be between 12 million and 13 million units, with growth rates slightly lower than in 2023, but the market share will rise to around 40%. The market share of Chinese brand vehicles is also expected to reach 60% in 2024, setting a new historical high.

The new energy vehicle industry is showing a vigorous development trend, and the demand for core components is also entering a period of rapid growth. The rapid growth of the new energy vehicle industry will significantly drive the development of the automotive parts industry, with a large market increment space. In the future, the use of lightweight aluminum alloy materials or high-strength steel materials will become the development direction of production processes for automotive parts suppliers. Currently, the trend of applying lightweight parts is evident, and lightweight products such as aluminum automotive parts have a large market space and a good market development trend, with related industries significantly benefiting from the trend of automotive lightweighting.

To meet people's increasing demands for automotive safety, operational convenience, and entertainment, the automotive and automotive parts industries are increasingly developing towards electrification and intelligence. Automotive electronic technology is also being widely applied in the vehicle's power system, chassis system, body control, fault diagnosis, as well as audio, communication, navigation, and autonomous driving, ensuring the safety performance of the entire vehicle while enhancing the entertainment of driving. In the future, electrification, lightweighting, and intelligence will bring new technological breakthroughs and business development opportunities to the automotive and automotive parts industries, with huge market potential.

In fact, China's automotive parts industry has a huge market capacity, with a large number of enterprises in the industry, most of which are relatively small compared to international leading parts companies, presenting a small and scattered market pattern. The number of automotive parts companies nationwide is conservatively estimated to be over 100,000. However, the concentration of these companies is relatively low, with the output value of the top 30 parts group companies accounting for only 20% of the entire industry, and no monopolistic competition pattern has formed. However, the structure of China's automotive parts industry is currently undergoing adjustment and reshaping, and development is gradually maturing, with industry concentration gradually increasing. In the future, parts suppliers will also show a trend of group and centralized development.

China has now become the world's largest market for new energy vehicles, and international automotive parts giants are continuously increasing their investment in the Chinese market. They are taking a series of measures to strengthen localization to better adapt to new demands. For example, ZF is actively investing in production bases and R&D centers in China, striving for large orders in electric drive. In July last year, ZF announced an additional investment of 150 million euros to build an automotive airbag production base and R&D center in Wuhan. ZF intends to expand its sales in China and hopes that by 2030, the proportion of its revenue from China will rise to about 30%.

Other international automotive parts giants are also accelerating the establishment of new projects in China, including building new factories, expanding production lines, and setting up R&D centers. For example, Bosch is investing about 1 billion euros in Suzhou to create a core component and autonomous driving R&D and manufacturing base for new energy vehicles, mainly serving the Chinese market. Continental's smart manufacturing innovation center in China has also been established in Changsha, and the Changzhou factory has launched a phase three expansion project, while the Qufu factory has initiated a phase two project.

Most international automotive parts giants are paying unprecedented attention to the Chinese market, and they also intend to benefit from the rapid transformation towards automotive electrification and intelligence in the Chinese market, seeking new growth opportunities.

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The automotive market is shifting towards electrification, and parts manufacturers, like vehicle manufacturers, also need to find a balance between cutting-edge electrification investments and existing internal combustion engine businesses, seeking stable business and survival paths amidst various adverse factors such as high interest rates, geopolitical uncertainties, and global economic downturns.

However, in the parts industry, overseas companies still occupy a mainstream position in the market. China's automotive parts market supply is still highly dependent on countries or regions such as Europe, America, and Japan, which also reflects that domestic parts companies have a lot of room for improvement. Only by continuously improving the product research and development and technological breakthrough levels of the domestic automotive parts industry can domestic automotive parts gradually replace imported ones, making car maintenance more affordable for everyone in the future.