Tension field

Chinese suppliers forge ahead

Munich, June 2017

he electrification of mobility in China, strongly supported by the state, is playing right into the hands of Chinese car suppliers.

A handful of Chinese companies are currently among the global Top 100 automotive suppliers. Among others, Weichai Power and Yanfeng Automotive Interiors, suppliers of diesel engines and interior systems respectively, are ranked as “pure” Chinese companies. Pirelli and Nexteer meanwhile, have Chinese majority shareholders or are under Chinese ownership. Outside the Top 100, many medium-sized suppliers are also under Chinese ownership, for example Kiekert and Hilite.

Weichai Power, currently ranked no. 17 in the list, had a total turnover of €11.9 billion in 2017. Alongside engine production, the company has consistently expanded its product portfolio, which now includes gears, axles, control units and other components, such as for forklifts and commercial vehicles. Acquisitions outside China including Kion (2013) or Linde Hydraulics (2012) have contributed significantly to the growth of Weichai Power.

Yanfeng Automotive Interiors is currently the world’s largest supplier of vehicle interiors. The company, the result of a joint venture with Johnson Controls, supplies OEMs with comprehensive interior solutions and achieved a turnover of €7.1 billion in 2017. Through its relationship with Kostal, the company can also offer human machine interface (HMI) solutions. Yanfeng also supports some joint ventures, for example with KSS (safety systems such as airbags, safety belts and steering wheels), Plastic Omnium (exterior parts such as bumpers and radiator grilles) and Adient (seats and seat components).

The success stories of both these companies indicate that more Chinese companies are going to be moving into the Top 100. To this end, various strategies are being pursued. Established suppliers use internationalization, as well as moving component suppliers horizontally and vertically to module/system suppliers in the value creation chain, to achieve turnover growth. A whole range of new suppliers are using the rapid development of e-mobility in China to drive their growth.

International expansion, along with technology development and extension of know-how, is typically accelerated by acquisitions abroad. Examples of this are Nexteer, Kiekert and the starter and generator maker Sparte (SG) by Bosch, which was taken over in 2017 by the Zhengzhou Coal Mining Machinery Group (ZMJ). Because ZMJ was mainly active in the Asian region before the takeover, the takeover gives the company not only immediate access to the European market, but also to supply premium European and American OEM customers in Asia. Ningbo Joyson (ranked no. 75) has also been able to achieve enormous turnover growth through takeovers abroad. In Germany these include the takeovers of Preh (2011), Quin (2015) and TechniSat Automotive (2016), as well as the takeover last year of the troubled Japanese supplier Takato by the Ningbo Joyson subsidiary, KSS.

Horizontal movement – i.e. the expansion of the product portfolio – and evolving from a component into a system supplier are also typical growth strategies used by Chinese suppliers. One good example of this is the largest supplier conglomerate in China: the Wanxiang Group (turnover €xxx billionin 2017). The company started in the late 1970s, producing universal joints for cardan shafts. Since then Xanxiang has not only constantly expanded its portfolio, but has also consistantly evolved into a module/system supplier through targeted acquisitions. The current portfolio includes steering columns, axle shafts, water pumps, silencers, brake calipers, front axis modules and small power units. Battery producer A123 has been a part of this conglomerate since 2013 and Fisker Automotives since 2016.

Another example of typical Chinese company growth is the Minth Group (turnover €xxx billion in 2017), which offers interior and exterior components (radiator grilles, roof racks, door sills etc.). The company has massively expanded its portfolio by producing structural components, control units and seat components. Since 2016 Minth has also been the first company from the supply industry to hold a license to build BEVs. Fulin Precision Machining and Shengrui Transmission are also companies following a similar growth path to Wanxiang and Minth.

The internationalization and in particular the verticalization of their portfolio present the companies with new challenges. Although process chain management of the production of parts and components is still comparatively easy, the integration of components and modules into complete systems requires comprehensive system knowledge.

While autonomous driving and connectivity in China are dominated by the internet giants Ali, Baidu and Tencent, e-mobility does offer opportunities for new suppliers. As the largest single market for BEVs (known in China as NEVs – new energy vehicles), battery producers of Chinese origin (e.g. CATL, BYD, Guoxuan, Lishan, BAK, and CALB) already had around 35 percent of global market share for installed battery capacity in 2016. This share is expected to increase to 45 percent by 2025.

CATL and BYD are currently among the obvious market leaders. In 2017 CATL achieved a turnover of around €2.6 billion (34 percent higher than the previous year) and a considerably improved profit margin of around 20 percent compared with 2016. CATL acts both as a cell pack supplier and as a rechargeable power pack supplier, and supplies numerous Chinese OEMs such as Geely and FAW, Chinese NEV start-ups such as NIO and WM, and the local joint ventures of BMW and Volkswagen. CATL has now reached a market share of 29 percent on the domestic market.

A supplier landscape has also developed in the e-mobility ecosystem around vehicle charging. This includes companies whose products range from hardware production to installation of charging stations, operation and back-end solutions. SAIC Anyo, Starcharge, Wanma and Zhida are some of the more important companies in this segment, however their business operations are still very much limited to the Chinese region.

With the continuing growth in global car production and the sustained high domestic demand in China, it can be assumed that five more Chinese suppliers will join the Top 100 club within the next three years. International competition and cross-border consolidation look set to gain considerable momentum once again.

Dr. Jan Dannenberg

Executive Partner

Willy Wang

Managing Director China

Hongtao Wei

Senior Associate

About the author

Dr. Jan Dannenberg (1962) has been a consultant for the automotive industry since 1990 and became a founding partner of Berylls Strategy Advisors in May 2011. Until spring 2011, he worked with Mercer Management Consulting and Oliver Wyman in Munich, Germany, on international projects – for five years as Associate Partner, and another three years as Partner. He is a recognized specialist in innovation and brand management in the automotive industry, and primarily advises suppliers and investors on strategy, M&A and performance improvement. In addition he is Managing Director at Berylls Equity Partners, an investment company that specializes on mobility enterprises.

Bachelor of Arts in economics at Stanford University, USA; business administration and doctorate degree at the University of Bamberg, Germany.