The sudden outbreak not only disrupted the life rhythm of residents in many countries and regions, but also impacted the global industrial chain with China as an important node.
As a typical case of a large international division of labor, the global automobile industry under the epidemic is facing a heavy test: overseas, multinational vehicle manufacturers have been forced to shut down production lines; in China, foreign-funded parts manufacturers are worried about the breakdown of overseas supply chains.
The epidemic will eventually pass, but the global automobile industry chain, which has disrupted the rhythm, needs to be reflected on -
If there were no China, what would the global automobile industry be like?
Text | Yunhe Associate Researcher of Outlook Think Tank
Global Automobile Supply Chain Crisis
From the perspective of the global automobile industry, the companies that have been greatly affected by the epidemic in China this time mainly include two categories:
The first category is a multinational vehicle factory with great dependence on China's parts imports.
As of now, many large automobile companies such as Hyundai, Toyota, Nissan , Fiat Chrysler, have all been forced to stop production due to insufficient production capacity of Chinese suppliers and some production lines.
At present, the South Korean automobile industry has been hit the most. Since the spread of the epidemic to the present, South Korea's five major vehicle manufacturers - Hyundai, Kia , GM, Shuanglong and Renault Samsung, have all encountered problems of insufficient upstream supply and factory shutdown to varying degrees. It is reported that in order to respond to the supply chain crisis, the South Korean government is planning to simplify the logistics and customs clearance process of China's parts imports so as to resume supply as soon as possible.
February 4, South Korea's Hyundai Motor announced that it will suspend production in its largest manufacturing base in South Korea due to the interruption of parts supply due to the novel coronavirus outbreak. The picture shows Hyundai Motor's Ulsan second factory production line.
The domestic production process of Japanese auto companies has also been severely affected by the procurement process. According to statistics from the Japan International Trade Center, about 37% of Japan's imported auto parts were imported from China in 2019, accounting for a higher proportion than the United States, including basic parts around the engine, and other products.
Due to the hindered supply of parts from China, Nissan's vehicle factory in Kyushu has announced the suspension of production. The factory mainly produces the Serena MPV model launched in Japan, as well as the SUV model Rogue exported to the North American market.
The second category is a multinational component supplier that opens multiple factories in China.
According to preliminary statistics, Hubei Province, which is the most severe epidemic, has gathered many large automotive parts suppliers such as Bosch , Webaster, Delphi, Valeo, Honeywell , Visteon, and other fields. The products cover engines, gearboxes, chassis, body, electronic systems, etc.
Take Bosch as an example. As one of the world's largest suppliers of automobile parts, Bosch positioned China as the group's global manufacturing base. It has two factories and more than 800 employees in Wuhan alone, mainly producing related components of automobile steering systems and thermal management systems.
Not only that, the key components of electric vehicles that Bosch Group are proud of - including motors, transmissions and electronic components - also rely heavily on the production capacity of Chinese factories.
Because of this, on January 29 this year, Bosch Group CEO Volkmar Denner told Reuters reporter that if the epidemic continues, Bosch's global supply chain will be interrupted.
In addition to Bosch, there are many large German auto parts suppliers that have set up factories in China, including Vibast, ZF, etc. Estimated data released by the Automotive Research Center of Duisburg-Essen University shows that if all German automobile-related companies in China are suspended, the average daily loss will reach 72 million euros (about 546 million yuan).
Therefore, in the report, the center called on Germany and the EU to provide assistance to China as soon as possible through various means, because "this is not only about humanitarianism, but also about Germany's own economic lifeline."
South Korea is no exception. According to data from the South Korean Auto Industry Association, there are currently about 170 South Korean first and second-tier parts suppliers operating about 300 factories in China.
To a certain extent, the sudden outbreak of the epidemic provides a perspective for re-examining the relationship between China and the global automobile industry chain. Whether it is an overseas factory that is anxious to hope that Chinese parts manufacturers will resume work as soon as possible, or a foreign-funded enterprise that invests a lot of money and lays out huge production capacity in China, it all explains that China occupies a very critical position in the global automobile industry chain.
irreplaceable China
Unlike traditional automobile powers such as Germany, the United States, and Japan, which have gone through a century-long journey, China's automobile industry has only taken a few decades to develop from scratch, while the period of rapid development is only about ten years.
But under such circumstances, China's automobile industry not only achieved rapid growth in production and sales in the local area, put the "wheel" in the dream of a well-off society of countless Chinese families, and won tickets to enter the automobile society for hundreds of millions of people. At the same time, it was deeply embedded in the global automobile industry division of labor. With its strong production and manufacturing capabilities and consumer market potential, it has become an indispensable part of the supply and demand chain.
In terms of upstream components, from the perspective of exports, at least more than 50% of the world's manufacturing of automobile parts is related to China.
According to the model analysis of the Institute of Geographical Sciences and Resources, Chinese Academy of Sciences, the average annual growth rate of China's automobile parts exports reached 25.7% between 2003 and 2013, and its proportion in the total global parts export volume increased by nearly 14 percentage points, with the highest development speed among all countries.
research results show that since 2003, the core of the global auto parts trade network has gradually shifted and shifted from the United States and Japan to China and Germany. Especially in the fields of electronic and electrical components, tires and inner tube components, Chinese suppliers have considerable advantages.
is not only a local supplier, but also a large number of multinational parts giants have chosen to invest in factories in China. Most of the production capacity serves Chinese customers and some are supplied to overseas markets. It is worth noting that many foreign-funded companies now regard China as a manufacturing center based in Asia and even radiate the world, but also begin to set up R&D and testing centers in China.
In terms of complete vehicles, the global automobile industry is also highly dependent on China's automobile productivity and market purchasing power.
Although it has experienced some fluctuations in the past two years, compared with countries such as the United States, Europe, and Japan that have already entered a mature automobile society, the entire Chinese market is still growing and is far from saturated. Judging from the indicator of the number of people in the world, although China ranks the world's largest automobile production and sales country, the number of people in the 1000 is only about 140 vehicles, equivalent to 1/5 of the United States and 1/3 of that of Japan and Germany. This shows that the demand for China's automobile market is far from capping, and there is still a lot of room for growth in the future.
In view of this, multinational car companies will invest a large amount of production capacity to China. Especially in the field of passenger car, according to incomplete statistics, there are currently nearly 30 passenger car joint ventures in China. Judging from sales, the market share of joint ventures and foreign-funded brand passenger cars in China is very considerable. data from the China Association of Automobile Manufacturers shows that in 2019, the cumulative production and sales of passenger cars reached 21.36 million and 21.444 million respectively, and the sales of foreign-funded and joint venture brands accounted for more than 60%.
In the emerging market of electrified cars, China's role as the leader is even more obvious. In 2019, under the influence of various adverse factors, China's new energy vehicles produced and sold 1.242 million and 1.206 million respectively, of which 1.02 million and 972,000 were produced and sold pure electric vehicles respectively.
This year, the cumulative sales of electric vehicles in the United States were 329,300, and the global sales of electric vehicles were about 2.2 million. China accounts for almost half of the global electric vehicle market.
Therefore, in this sudden outbreak, whether it is the loss of upstream Chinese suppliers or the fierce competition in the Chinese consumer market, the consequences will be disastrous for large foreign-funded parts and vehicle manufacturers.From this perspective, China's importance and irreplaceability in the global automobile production chain are self-evident.
It is not easy to find another place
At the same time, the outbreak of the epidemic has also exposed a "hidden worries" in China's automobile manufacturing industry.
In January this year, Japanese-owned auto parts company Weifu Technology announced that it would transfer part of its production capacity in its Wuhan factory to its factory in the Philippines. If the epidemic continues to spread, it is not ruled out that more production capacity in China will be transferred away. It is reported that the supplier mainly produces automobile chassis, suspension devices and various pedals.
Even if there is no impact of the epidemic, China's manufacturing industry, including automobiles, has also smelled a slightest sense of capacity transfer in recent years: Samsung, , Microsoft , Toyota and other multinational companies have begun to slightly reduce their production capacity in China under the influence of many factors such as international economic and trade, labor costs, and transfer part of their production to other regions including Myanmar and the Philippines.
Although the above transfer has far no impact on China's manufacturing industry, in the face of the impact of this epidemic on the global supply chain, will a large number of Chinese and foreign-funded enterprises that have settled in China leave China and look for another place in the short term?
It turns out that supply chain migration is not that simple. Even in the case of extremely unfavorable external environment, China's manufacturing industry has strong resilience and stickiness to foreign investment.
In the second half of 2018, when Sino-US economic and trade frictions escalated, the Japanese Trade Extension Agency conducted a survey on 379 German-funded enterprises invested in China. The results showed that more than 80% of the enterprises clearly stated that they had never considered transfer capacity.
At the same time, the choices of some multinational car companies are more interesting: Tesla's head Musk immediately came to China and quickly decided to build a wholly owned factory in Shanghai; BMW announced that it would increase the number of cars produced in Chinese factories in the future, and plans to transfer part of the production capacity and facilities of a US-made SUV to China; Ford Auto ignored the call of US President Trump and announced that it would launch the production and manufacturing of the high-end car brand Lincoln in China.
In fact, the modern manufacturing supply chain is affected by many factors - labor costs and quality, business environment, infrastructure supporting, operating costs, supporting systems, transportation conditions, and manufacturing culture. Once the advantages are established, it will not be easy to achieve migration in a short period of time.
In addition, the current supply chain of China's automobile manufacturing also has three advantages:
first, and the two forces of globalization and regionalization reshape the global automobile manufacturing division of labor network.
Automobile is a typical product with a large division of labor in the global manufacturing industry. According to statistics, Ford has more than 450 suppliers in 36 countries and regions around the world; General Motors has a total of 482 suppliers in 38 countries and regions around the world. The role of regionalization in shaping the global automobile manufacturing landscape is becoming increasingly prominent. In other words, the automotive industry is integrating around regional centers.
In this regard, Hau Thai-Tang, the then executive executive of Ford's automotive product development and procurement, told the British magazine "The Economist" that Ford has always obtained supplies from suppliers around the world, but one trend he has observed is that the entire supply network has obvious regional characteristics, and thus formed three central radiation areas: Mexico radiates from the United States, Eastern Europe and Morocco radiates from Western Europe, and China and Southeast Asia radiates from Asia.
In other words, even if certain low value-added labor-intensive industries are selected from China in the future, the alternatives are limited under the influence of regionalization. In view of this, the Economist believes that even if multinational companies cut production capacity in China and move to Southeast Asian countries, it can only strengthen the "China-centered regional supply chain."
Second, due to transportation costs and other reasons, the characteristics of the automobile industry in the consumer market are more prominent.
As automobile products become more and more complex, the number of parts continues to increase, especially the degree of automation in the production and assembly process has led to a significant increase in the cost of "offshore production of components - assembly - transporting to sales places" and is far less cost-saving than assembly near sales places.
Take Tesla, which was put into production in the Shanghai factory as an example. It is estimated that compared with the US supply chain, the investment in raw materials and parts of domestic Model 3 is expected to save 10%-20%. In addition, manufacturing costs and labor costs have been greatly reduced. The total production cost of Model 3 after achieving full domestication of parts will be reduced by 20%-28%.
China is also a world-renowned automobile consumer country. Multinational companies' smart considerations based on cost and other aspects will make the production, assembly and sales of products as close as possible, or even overlap.
Third, one of the biggest advantages of China's automobile manufacturing industry lies in its integrity.
In 2018, the "Research on the Development of China's Auto Parts Industry" commissioned by the Equipment Department of the Ministry of Industry and Information Technology released data: There are more than 100,000 parts companies in China, and 55,000 are included in the statistics, basically achieving coverage of 1,500 parts. Among them, there are 7554 power systems (13.8%), 4751 electronic systems (8.7%), 1,003 special components for new energy vehicles (1.8%), and 16,304 chassis systems (29.8%).
In some cutting-edge technology fields, China's automobile industry chain also has certain integrity. The "Evaluation Report on the Regional Development of China's Autonomous Driving Vehicle Industry" released by Outlook Think Tank in 2019 shows that there are 88 key enterprises in the country's autonomous driving industry chain, with a full industrial chain from upstream parts to middle-stream first-level/second-level suppliers, and then to downstream vehicle manufacturers and travel service providers.
Photo/Outlook Think Tank "Evaluation Report on the Regional Development of China's Autonomous Driving Vehicle Industry"
In fact, the integrity of a country's industrial system is one of the important factors that determine the country's industrial level. In other words, a complete industrial system determines to a certain extent whether a country's industry is "active". This statement also applies to the automobile manufacturing industry. If some links are missing in the automobile manufacturing system, it will be difficult for the remaining parts to be connected into a network and maintain vitality. This is also the current problem facing the industrial systems of developed countries such as the United States.
It is undeniable that in some high-value-added and high-tech industrial links, the Chinese automobile industry does not enjoy standard voice and rich industrial profits, which is also the reason why China's automobile industry is often criticized for "hollowing parts"; but at the same time, the integrity of China's automobile supply chain should not be denied, laying a good foundation for industrial agglomeration and forming economies of scale.
At the same time, how to continue to climb to the high-value end of the industrial chain on the basis of further leveraging the integrity of the industrial system in the next stage will also become a major issue facing the Chinese automobile industry.
4
breaks through the "smile curve"
Since the American Harvard Business School strategist Michael Porter proposed the famous value chain concept and analysis method, and the "smile curve" has become the yardstick for Chinese industry to compare and reflect.
For the Chinese automobile industry, how to break the curse of "smile curve" has also been a long-term task and focus.
Nikkei News once drew a distribution map of Chinese-made parts in Japanese automobile products:
Photo/Nikkei News
According to statistics from the General Administration of Customs and the China Association of Automobile Manufacturers, the cumulative import amount of automobile parts in 2018 was about US$35.1 billion (about RMB 245.8 billion), and the export amount was about US$55 billion (about RMB 385.2 billion), an increase of 10.8% and 10% year-on-year, and the import and export surplus was US$19.9 billion (139.4 billion).
According to statistics from various countries and regions, the total export of automobile parts (except engines) in 2018 was approximately US$421.3 billion (2.95 trillion yuan). According to this calculation, China accounts for about 13% of the global total parts exports. At least 50% of the world's automobile parts are produced and exported by China.This shows that most of China's automobile parts industry is indeed at the middle and lower end of the "smile curve" value chain.
Theoretically, after eliminating emergencies or uncertainties in international economic and trade, in order to develop the economy, the country should focus on which industries to develop and which products to manufacture in a certain period is determined by a country's relative price and endowment structure of factors during this period.
Simply put, if developed countries have more capital and less labor, then capital-intensive industries should be the focus of development; if developing countries have less capital and more labor, labor-intensive industries will have great prospects. If a certain type of industry is developed in violation of its own factor endowment structure, it often requires distorting the factor price signal, or it will be accompanied by the problem of low productivity, which is inevitably unsustainable. Although it is not easy to climb from the low-value end of the industrial chain to the high-value end, if late-developed countries can actively introduce mature foreign technical products to digest and absorb them on the basis of strengthening independent innovation, it is possible to catch up.
But it is actually more difficult to "go downward" from the high-value end of the industrial chain, because the country's factor endowment structure is often irreversible. " American Factory ", which just won the Oscar for Best Documentary, vividly illustrates this point: it is extremely difficult to return labor-intensive industries to developed countries.
From this point of view, China's automobile manufacturing industry "going upward" is not only the common expectation of the industry, but also a process of resonance with the current national industrial structure upgrading.
The part of the production capacity transferred from China's current manufacturing industry shows that most of them are actually labor-intensive commodities driven purely by cost.
From the perspective of China's automobile supply chain itself, unlike the low quality and low price many years ago, a number of high-level parts companies have emerged in China and have been included in the global procurement system of multinational companies with high entry barriers. The products of many companies have received considerable recognition in the international market.
For example, Fuyao Glass currently has a global market share of more than 20%, and its partners include many international car brands such as Rolls-Royce , BMW, Mercedes-Benz, Cadillac , Audi , etc. Ningde era surpassed Panasonic in 2017 and ranked first in the world in power battery sales.
At present, the domestic Tesla Model 3 is moving towards full domestic production of parts, which is also one of the supporting factors for the rising level of China's automobile supply chain. It is reported that the domestic production rate of this model is 30%, and it is expected to achieve a domestic production rate of 80% and 100% by the middle and end of this year respectively. CATL, Junsheng Electronics, etc. have all been included in Tesla's procurement basket.
's climb to the high-value end of the industrial chain is not only related to corporate returns, but also to the supply security of China's automobile industry itself. Especially in the past two years, the global economic and trade and political situation has been complex and changeable. Industrial security has been mentioned in a crucial position. In the process of the transformation of the automotive industry towards electrification and intelligence, the importance of electronic information technology will become increasingly prominent in the future.
In this regard, Fu Bingfeng, executive vice president and secretary-general of the China Association of Automobile Manufacturers, believed in an interview with Outlook Think Tank that over the past 40 years of reform and opening up, China's automobile industry has been deeply integrated into the international industrial chain division of labor system, and the supply and demand are currently relatively balanced, and it has developed relatively maturely in the most core traditional manufacturing part.
But since many supply chains extend abroad, the technological gap or risks at the end of the industrial chain are not easy to detect, and the industry needs to be vigilant:
"Now, China's vehicle manufacturers attach great importance to the innovative development of vehicle systems, bodies, chassis, etc. However, as the automobile industry transforms to intelligence, involving this part of the electronic information components, there are also some core technologies that we have not mastered or are not mature enough. This is the biggest risk that China's automobile industry may face in the future." Fu Bingfeng said.
5
Global and the same cold and hot
In recent years, the global automobile industry has seen two phenomena: "one cool and one hot", adding variables to the future development direction and division of labor pattern of the industrial chain.
On the one hand, the three major regional automobile markets centered on the United States, Europe and China have all entered a cold winter to varying degrees. Multinational auto companies have reduced production, closed factories and laid off employees and have become routine operations. Many parts suppliers have also faced severe tests and their profits have shrunk significantly.
On the other hand, the "four modernizations" direction of the automotive industry is unstoppable, and many rookies are pouring out of the water. The most representative of include: core components of electric vehicles - power battery suppliers, related suppliers of autonomous driving systems, shared and smart travel solutions suppliers, etc.
Under the influence of the above two forces, the value chain of the automobile industry is being reconstructed. Whether it is for China or other traditional automobile powers, new corporate roles or old players, they will face huge opportunities and challenges.
In terms of electrification, compared with traditional fuel vehicles, the parts of electric vehicles will be reduced. The Edison Electric Institute predicts that the U.S. electric vehicles market share will rise from 2% in 2018 to 20% in 2030. One of the effects of this is that the total trade volume of automobile parts in the United States will be significantly reduced.
Not only parts suppliers need to be prepared, but vehicle manufacturers are also nervous about the arrival of the era of electrification and intelligence. Ford once calculated that if automotive products turn to electrification, the value of brand manufacturers may shrink by 10%-30%.
In terms of intelligence, with the rise of a new round of global scientific and technological revolution and industrial transformation, especially the rise and vigorous development of cutting-edge Internet, the automobile industry is exploring transformation. Upstream suppliers—including electronic products, Internet technology solutions, artificial intelligence solutions, etc.—are becoming increasingly important.
As a result, the relationship between vehicle manufacturers and upstream digital and networked suppliers has been reshaped, and the ecology of vertical division of labor in the traditional automobile industry is being broken, and the phenomenon of in-depth cooperation and horizontal division of labor between the two is gradually increasing.
In terms of sharing, the emergence of downstream travel service providers has broadened the definition of the automotive industry. Next, how upstream technology suppliers, midstream vehicle manufacturers, and downstream service suppliers reposition themselves in the industrial value chain is not only related to the development and interests of the enterprise, but also to where the global automobile industry is heading.
In this case, Chinese and foreign-funded enterprises embedded in the global automobile industry chain actually face many common confusions and difficulties. In many cases, it is even necessary to break national boundaries and work together to climb over obstacles.
Just as the epidemic has brought the same enlightenment to the global automobile industry chain: in the face of unknowns and difficulties, we need each other more.
Reference materials:
【1】"Interpretation of China's economy"|Lin Yifu, Peking University Press, 2012
【2】"The Changes and Unchanges in the Future of China"|Jia Jinjing, Jiangsu Literature and Art Press, 2014
【3】"Evaluation Report on the Regional Development of China's Autonomous Vehicle Industry"|Outlook Think Tank, 2019
【4】Evolution Characteristics of the Global Trade Pattern of Complete Vehicles and Parts|Zheng Lei, Liu Yi, Liu Weidong, Geographical Science, 2016.5
【5】"The Road to a Powerful Automobile 2019"|Outlook Think Tank, Xinhua Publishing House, 2019
【6】Loving China,leaving China|The Economist, 2019.7
【7】Made in China: New, improved and stronger than ever|The Economist, 2015.3
【8】Global Trade and Investment Report 2019The fluctuating international economic order and global business in the future|JETRO (Japan External Trade Organization), 2019
【9】Bosch CEO warns coronavirus could hit global supply chains|Reuters, 2020
