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Auto parts are the various units that make up the entire car and a product that serves the car. There are various types of car parts, and with the improvement of people's living standards, people's consumption of cars is also increasing. The market for car parts is also becoming larger and larger. In recent years, automobile parts manufacturing factories have also been developing rapidly.
1. Since the beginning of 2023, the overall downstream demand in China has been weak, and the export of components has maintained a high growth rate. Despite a year-on-year decline in overall sales of downstream passenger cars, the revenue of the components sector has still achieved a positive year-on-year growth.
① With the rise of independent brand manufacturers, the terminal sales performance of independent vehicle models is better than the overall sales performance of passenger cars, and the revenue changes of listed component companies in the sector are more closely related to the sales of independent vehicle models. Domestic component factories are the main manufacturers of supporting components for independent brand host factories, and for 23 years, the downstream terminal demand for independent brands has been better than that of joint venture brands. Domestic component companies listed within the sector have a higher correlation with the sales of domestic vehicle models, so they are less affected by the overall decline in passenger car sales. It is expected that some unlisted joint venture/foreign-owned component manufacturers may face greater performance pressure due to downstream customers being mainly joint venture OEMs. Taking some listed component companies with a relatively high proportion of joint venture customers as an example (unlisted joint venture component manufacturers lack data), joint venture brands account for a relatively high proportion of downstream customers such as Huayu Automobile, Xingyu Group, Shenglong Group, and Dongfeng Technology, and are more affected by the decline in sales of joint venture models.
② The car market in Europe, America and other regions is still in the recovery stage, and the gradual recovery of downstream demand has driven China's component exports to achieve a relatively high year-on-year growth.
③ The main raw materials for component enterprises include aluminum, steel, plastic, rubber, etc., and the prices of various raw materials have decreased significantly year-on-year. At the same time, with the delivery of new ships and the growth of container capacity, sea freight rates have fallen back to normal levels. Multiple companies have benefited from the decline in shipping costs and raw materials, leading to a recovery in profitability.
④ Stimulated by multiple positive factors, valuations are starting to recover. Since June, due to the delayed implementation of the National VI policy, the pressure of destocking fuel vehicles has decreased, and the price war has come to an end. Some joint venture vehicle terminal discounts have also begun to be recovered, driving the terminal prices of fuel vehicles to stabilize. With the launch of multiple new energy vehicle models, it is expected that new energy vehicles will continue to maintain a high growth rate throughout the year, driving the improvement of industry chain performance. In addition, with the positive stimulation of Open AI's empowerment of intelligent driving and humanoid robots, Tesla's industrial chain led the way in growth, driving the valuation of the parts sector to gradually recover.
2. The growth rate of component revenue outperforms the growth rate of passenger car sales, and the industry's recovery drives the demand in the sector to rise. After conducting statistics on A-share listed companies, it was found that the revenue growth rate of component companies significantly outperformed the growth rate of passenger car sales. The proportion of independent brands in the market continues to increase, driving the growth of demand in the industrial chain. The proportion of sales of mid to high end vehicle models has increased, driving the increase in the value of individual components. In the second half of 2023, with the digestion of channel inventory, the gradual launch of new models, and continuous breakthroughs in overseas markets, it is expected that passenger car production and sales will gradually recover, and the recovery in passenger car production and sales will drive the overall demand for components to rise.
① The downstream price war has a significant impact on the profits of component companies, but some companies such as Xingyu Group and Sailun Tire still achieve sustained improvement in profitability due to their strong attributes. Sailun Tire mainly benefits from the layout of overseas factories under the European and American anti trade policies, while Xingyu Group mainly benefits from the product upgrades of its core customers such as FAW Volkswagen.
② From the perspective of segmented tracks, the gross profit margin of high barrier segmented areas may be affected or slightly lower. Component segments with high market attention, such as aluminum die-casting, thermal management, automotive electronics, automotive accessories, etc. Representative companies are selected for each segment. High barrier automotive electronics (mainly including Bertelli, Baolong Technology, Keboda, Huaan Xinchuang, etc.) have a relatively small decrease in gross profit margin.
③ After entering 2023, due to the impact of price wars and the release and listing of multiple new models by leading automakers, new energy tail end vehicle companies have shown an accelerated trend of clearing out. For component companies, leading manufacturers in the industry chain are expected to achieve performance and share growth as their market share increases, with performance leading the industry average. From the beginning of 2023 to present, the CR8 sales of new energy host factories include BYD, Tesla China, GAC Aion, Geely Automobile, SAIC Group, Changan Automobile, Ideal Automobile, Geely Automobile, and SAIC GM Wuling.
④ In this round of price war, component companies with a relatively high proportion of joint venture customers, fuel vehicle customers, or new energy tail end vehicle enterprise customers are affected by the decline in sales of main engine manufacturers, resulting in reduced demand. The company's goodwill, inventory goods, accounts receivable, and fixed assets may face impairment risks, and the degree of performance differentiation from domestic car companies and leading new energy vehicle enterprise industry chain companies is increasing.
⑤ In terms of profitability, the significant price reduction of upstream battery raw materials for new energy vehicles has brought significant room for price reduction, which may to some extent alleviate the pressure on other component suppliers in the industry chain. Considering the increase in the proportion of new energy business from component manufacturers, the annual pressure on component companies in this round of price war may be less than the previous round. Looking at the entire year of 2023, considering the lag in the transmission of price wars to the upstream, it is expected that the annual pressure of price wars on component enterprises will gradually reflect. Specific changes in the profitability of the sector still need to be tracked and observed. However, it is expected that the impact on the overall profitability of the component sector will be relatively small compared to the previous round of price wars. Some companies with strong business resilience and attributes are expected to continue to have impressive profit performance.
3. The trend of anti globalization is rising, and trade frictions in the automotive industry chain are intensifying. In order to promote the rapid development of the domestic new energy vehicle related industry chain, the United States, France, and others have respectively introduced differentiated subsidy policies to support the development of the domestic related industry chain. At the same time, overseas countries impose high anti-dumping tariffs on domestic export products, including steel and tires. The combination of the epidemic and a significant increase in energy costs has led to a wave of bankruptcy for a group of small and medium-sized component companies overseas. Against the backdrop of intensified trade frictions and demand from main engine manufacturers to ensure supply, some component companies are more inclined to build factories overseas to layout production capacity, in order to avoid the adverse effects of tariffs and other factors. The bankruptcy wave of a group of small and medium-sized component companies overseas also brings opportunities, and multiple factors catalyze the acceleration of global layout of component companies.
① The export of passenger cars is accelerating, and the overseas business of components has entered the second stage. By leveraging new energy and intelligent technology to achieve breakthroughs in the European and American markets and enhance brand status, Chinese car companies are accelerating their exports. It is expected that the export sales of passenger cars will reach 3.81 million units in 2023, a year-on-year increase of 51%. For component companies, the first step in their overseas business is to follow the passenger car supporting exports and domestic production of domestic car companies and export them overseas. The supporting income of the former is generally considered as domestic income and is not included in the company's overseas business statistics. In 2022, the overseas income of component companies accounted for 29% of the report end, and the actual overseas income exceeded this value; The latter refers to direct exports to overseas host factories or component factories, which are directly counted in the overseas revenue on the reporting end; The second step is to establish overseas factories and supporting facilities, which is also a key area for component companies to layout in recent years, truly achieving globalization of production, research and sales. From the perspective of component segmentation, the overseas business in the tire and wheel hub field is already relatively mature, and other segmented fields are at a similar stage.
② Multiple component companies are planning to build new overseas factories, and the production capacity of overseas factories is expected to be gradually released. Affected by the rise in raw material prices and energy and power costs, the overseas parts supply chain is facing a reshuffle, and the original mature supply system has been broken. The export of parts has ushered in a good opportunity for development. On the one hand, the supply chain risks have been fully recognized under extreme circumstances of the epidemic, and host factories have begun to cultivate secondary and tertiary supply, bringing opportunities for domestic manufacturers. On the other hand, Some overseas component manufacturers have gone bankrupt, and domestic suppliers have switched to the supply system. This process is not uncommon during the epidemic and is expected to continue in the next year. Multiple component manufacturers are investing in new factories in Mexico, Serbia, and other regions, and are about to unleash their overseas production capacity. For example, Yinlun Group's Mexico factory, Rongtai Group's Mexico factory, and Daimei Group's Mexico factory are expected to start production between 2023 and 2024.
③ Tesla's manufacturing revolution has driven the industry chain to expand beyond the automotive industry. Tesla started as an electric sports car and exploded with the affordable Model 3 and Model Y, quickly achieving global production, research and sales, and leading technology in multiple fields such as power batteries, thermal management, and integrated die-casting, driving the transformation of the automotive parts industry chain. Since 2015, Tesla has been expanding its energy storage business, and its domestic factory will land in Shanghai in April 2023; The Tesla humanoid robot Tesla bot made its debut in 2021 and Optimus made another appearance in 2022, with the potential to achieve mass supply by 2025. Tesla leads the production and manufacturing revolution, while also leading the industry chain enterprises to expand from the automotive parts field to charging stations, energy storage, humanoid robots, and other areas, opening up the industry ceiling and growth space.
4. The internal competition of car models drives configuration upgrades, and low penetration sectors have better growth potential. On the one hand, the penetration rate of new catalytic products such as consumption upgrading, high-end, and configuration involution is increasing, and cars are gradually evolving from a means of transportation attribute to a "second home" attribute. The high-end and more incremental configurations of domestic brand models are expected to gradually become popular, such as improving comfort with air suspension configuration, optimizing sound effects with independent high-power amplifiers, and promoting intelligent lighting with matrix headlights; On the other hand, technological iteration catalyzes an increase in the penetration rate of new products. For example, the integrated die-casting process significantly reduces the workload and working time of body welding, and the suede microfiber improves the comfort of interior components.
① The performance of automotive components is directly affected by global automotive sales. In a relatively stable sales situation, the higher the value of automotive components per vehicle and the corresponding industry ceiling, the more likely automotive component companies in the corresponding field are to grow into companies with higher revenue, profit, and market value. However, considering that some components have lower technological barriers, independent enterprises have already occupied a certain market share, and sectors with lower localization rates currently have greater growth potential in the future. The high-value and low localization rate sectors are mainly concentrated in the fields of high-voltage wiring harnesses, thermal management systems, seat assemblies, safety systems, subframes, suspension systems, brake steering systems, body sensors, and intelligent cabins/connected networks. The sub sectors with low domestic substitution rates include high-voltage wiring harnesses, seat assemblies, passive safety systems, automotive sensors, and other sub sectors.
② Parts companies are expected to grow together with top OEMs. The price war may accelerate the clearance of tail car companies, while the share of joint venture brands may accelerate the decline. The share of high-quality independent brand car companies is expected to further increase, and related industry chain component companies are expected to benefit. Component companies with a customer structure dominated by high-quality independent brands and strong new energy vehicle companies, such as BYD, Chery, and Tesla, are expected to grow together with downstream customers.
③ Companies with a global layout may perform well in 2023. On the one hand, under the pressure of domestic downstream demand, the recovery of the overseas automotive market, especially in Europe and America, brings opportunities. From a quantitative perspective, component companies with a global layout may seize the export opportunities of the new energy industry chain, and the demand pressure in 2023 may be relatively small. On the other hand, the year-on-year decline in container freight rates is significant. From a profit perspective, companies with a global layout (with a higher proportion of export business) benefit from reduced freight costs and greater profit recovery flexibility. In the long run, global layout of component companies has broader long-term growth potential. With the rapid increase in sales of domestic brands, the acceleration of domestic car companies going overseas, and the increase in product supply and market share of some component manufacturers in Tesla, domestic component companies are also expected to grow rapidly. Multiple component companies such as Xusheng Group, Xinquan Group, Yinlun Group, and Aikodi are accelerating their overseas production capacity layout. In the future, domestic component companies are expected to become global leaders in segmented fields.
④ By exploring new products and downstream application areas, the company is expanding its second growth curve, continuously iterating and expanding its business, and further expanding its growth space. In the context of the slowdown in sales growth of new energy vehicles and pressure on downstream demand in 2023, companies with new breakthroughs in product or downstream application ends and efforts to explore the second growth curve have strong endogenous growth momentum, which can to some extent hedge against the adverse effects of the slowdown in downstream demand growth. For example, Jifeng Group has expanded from seat components such as headrests and armrests to seat assemblies, Mingxin Xuteng has expanded from leather materials to ultra fiber leather materials, Songyuan Group has expanded from seat belts to steering wheels and airbags, Heli Technology has expanded from casting molds to aluminum high-pressure die castings and subframes, and Ruihu Mold has expanded from covering mold to stamping and welding parts and aluminum die castings.
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