The auto parts industry plays a crucial role in the broader automotive sector, contributing over 70% of its profits and serving as a cornerstone for independent innovation. However, in the Chinese market, foreign-invested firms dominate, holding more than 75% of the market share and controlling key segments like core components. Local parts manufacturers, heavily reliant on domestic automakers, are struggling. Financial reports from the top 20 listed auto parts companies reveal a concerning trend: despite revenue and net profit growth for many, overall figures have dipped. Revenue dropped 3.7% year-over-year to 168.85 billion yuan, while net profit fell nearly 20% to 9.649 billion yuan. The average net profit margin slipped to 5.7%, down 1.1 percentage points from last year.
Xu Changming, head of the National Information Center's Information Resources Department, noted that as domestic consumption slows and markets contract, foreign-funded parts firms are aggressively targeting both high-end and cost-effective products. This puts local companies under immense pressure. Given the weak foundations and limited resources of Chinese parts enterprises, they primarily serve domestic brands. When these brands face sales challenges, parts suppliers suffer too. Additionally, declining independent brands are increasingly sourcing foreign parts, further squeezing domestic players.
The automotive industry in China began with joint ventures, allowing foreign entities to dominate supply chains. For instance, American car suppliers are mostly foreign-owned, with 88.9% of European suppliers and 88.5% of Japanese suppliers being foreign-funded. Even Korean car supply chains remain largely closed to domestic enterprises. While self-owned brands have spurred some domestic growth, 52.8% of selected suppliers still have foreign investment backgrounds, leading to fragmented relationships within the industry.
Foreign capital holds significant sway over critical areas such as engine management systems, powertrain technology, safety electronics, and fuel injection. Multinational giants like Bosch, Denso, and Delphi dominate the market, with foreign-controlled firms owning up to 90% of the high-tech and core tech segments. Statistics from 2010 indicate that foreign enterprises hold 100% of the market for EFI systems, engine management, ABS, micro-motors, and airbags.
Due to differing joint venture regulations between vehicles and parts, there are no restrictions on foreign ownership in China’s auto parts sector. This openness has attracted substantial foreign investment, surpassing the number of joint ventures in recent years. Companies like Bosch, Haila, Brose, and Faurecia have established themselves as suppliers to local automakers. Bosch recently invested 700 million RMB in a new Changsha facility focused on Chinese-market-specific start/stop systems and electric drive products. Similarly, BorgWarner and Delphi have expanded their presence in China.
Zhang Zhiyong, a prominent figure in the automotive industry, argues that foreign parts firms have stronger staying power. With China's vast market, both partnerships between local and foreign firms and direct investments by foreign companies threaten to further reduce the market share of domestic parts businesses. Consequently, local firms might see continued profit erosion.
Overseas, European and American regulators have launched numerous trade actions against Chinese parts exporters, including anti-dumping probes and countervailing duties. These measures have severely impacted domestic firms, leaving them vulnerable. As such, the survival of these companies remains uncertain in the coming years.
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