Prospects for the Development of the Automotive Industry and the Auto Parts Market.

Shenjia Hydraulics

Release Date:

2023-05-10

At present, the Chinese automotive parts market is experiencing a period of rapid growth, with enormous market value and output. However, this boom also highlights a severe predicament facing China’s automotive parts industry: issues such as disordered industrial scale, inefficient resource allocation, inadequate intellectual property protection, suboptimal production processes, and inconsistent product quality all point to widespread disorder and lack of discipline within the sector. Looking ahead to 2015, according to statistical data released by authoritative bodies—including the National Bureau of Statistics, the Ministry of Commerce, the Ministry of Industry and Information Technology, and industry associations—the rapid development of China’s automotive industry is creating significant opportunities for automotive parts manufacturers. Sales revenue for Chinese automotive parts suppliers is expected to grow robustly in the coming years.

At present, the Chinese automotive components market is experiencing a period of explosive growth, with enormous market value and output. However, this rapid expansion has also brought to light a severe predicament facing the domestic automotive components industry: issues such as disordered industrial organization, lack of regulatory discipline, inadequate intellectual property protection, inefficient production processes, and substandard product quality are all starkly evident.

Looking ahead to 2015, statistical information and data released by authoritative bodies such as the National Bureau of Statistics, the Ministry of Commerce, the Ministry of Industry and Information Technology, and industry associations indicate that the rapid development of China’s automotive industry has created excellent opportunities for auto parts manufacturers. Sales by Chinese auto parts suppliers are expected to experience robust growth in the coming years. According to regional reports and statistics, by 2015 China’s vehicle stock is projected to increase from the current 60 million to 145 million units. This rapid expansion of the vehicle fleet will drive swift growth in after-sales parts market sales, with an annual growth rate exceeding 30% and total annual output value reaching RMB 2 trillion.

Such a vast market has provided a powerful boost to China’s automotive parts industry; at the same time, it has also attracted numerous foreign-invested enterprises. For instance, Freudenberg Group, which is optimistic about China’s automotive aftermarket, has recently been expanding its aftermarket operations. Its component subsidiary has specifically established Corteco, a sales company dedicated to the auto-parts market, which now supplies approximately 2,500 types of parts to nearly 50 authorized distributors—covering virtually every vehicle model on the market. Meanwhile, Bosch Chassis Systems, a world-renowned supplier of automotive systems, has opened its second manufacturing plant in Chengdu. With such a massive opportunity at stake, many of the world’s leading automotive service providers are closely eyeing this lucrative sector.

Secondly, investment in new-energy-vehicle components by countries around the world is set to become the next hot spot in the industry. China has already designated new-energy vehicles as a strategic emerging industry; under these circumstances, initiatives to establish industrial bases for new-energy vehicles and their key components are now being rolled out nationwide. Going forward, investment in the domestic new-energy-vehicle sector and its critical-component segment is expected to continue expanding, leading once again to a situation in which, even as the traditional auto-parts industry remains mired in dysfunction and unable to find a clear path forward, it is nonetheless forced to leapfrog into the next stage of development. As a result, the deep-seated problems left behind will be progressively masked, allowed to fester gradually over time, and ultimately ignored until they reach a breaking point.

At present, the Chinese market for automotive components is experiencing a period of explosive growth, with enormous market value and output. However, this boom also highlights a severe predicament facing China’s automotive components industry: issues such as disordered and unregulated operations are evident across multiple dimensions, including industrial scale, sectoral allocation, intellectual property rights, production processes, and product quality.

Secondly, global investment in new-energy-vehicle components is poised to become the next major growth area in the industry. China has already designated new-energy vehicles as a strategic emerging industry; accordingly, initiatives to establish industrial bases for new-energy vehicles and their key components are now underway across the country. Looking ahead, investment in the domestic new-energy-vehicle sector and its critical-component supply chain is set to continue expanding, which will inevitably lead to a situation where, even as the traditional auto-parts industry remains mired in dysfunction and fails to find a clear path forward, it is nonetheless forced to leapfrog into this new frontier. Meanwhile, the deep-seated problems left in its wake will be progressively masked layer by layer—until they eventually fester unchecked over time.

The continuous exposure of numerous quality deficiencies across the industry—ranging from scale to intellectual property—is bound to attract the attention of relevant national authorities. Consequently, under national leadership, initiatives such as mergers and reorganizations or overseas acquisitions are being progressively accelerated to systematically consolidate the industry’s technological capabilities, proprietary knowledge, and management expertise.

Faced with such a massive market in terms of output value and supply-demand dynamics, coupled with the increasingly fierce price wars in the vehicle manufacturing sector, automakers are placing ever-stricter demands on cost reduction and profit preservation. Meanwhile, although China’s auto parts industry boasts a large overall output value, it lacks significant economies of scale, leaving many players in a tight financial position and struggling to cope—conditions that erode profit margins and hinder the industry’s healthy development. Consequently, consolidation and restructuring in the auto parts sector have become imperative. It is foreseeable that, over the next few years, China’s auto parts industry will enter an accelerated phase of consolidation: on the one hand, horizontal and vertical integration among domestic firms will help achieve economies of scale; on the other hand, overseas mergers and acquisitions will enable the global optimization of production, marketing, and other resources, while also facilitating access to advanced technologies and management expertise.

In summary, the extent to which automakers expand their production capacity determines whether auto parts suppliers will closely follow suit, and the diversity of auto parts also, to a certain degree, influences whether these suppliers should promptly adopt localization strategies. Therefore, given the current vehicle parc of 145 million, the growth prospects for the auto parts industry are by no means negligible.

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