The automotive industry is currently undergoing a major fission in the entire chain, which has a great impact on the ecology of the entire industry.
On December 12, the 2019 Gasco New Supply Chain Conference was grandly held in Jiading, Shanghai. This conference brought together industry experts to share supply chain trends and changes in procurement patterns. The following is a record of the speech content of Deloitte China partner Zhang Xudong:
Hello everyone! I am very happy to be discussing automotive supply chain related topics with my colleagues today. As an international consulting company, Deloitte has been paying close attention to the development of the Chinese automotive market for a long time, and the overall automotive industry chain is our main concern. Based on the overall industrial chain market conditions and future development trends in the automotive market, today I will share the relevant risks facing the development of the automotive supply chain and how to effectively manage them.
The content mainly includes four aspects. First, the Chinese automobile market has experienced rapid development in the past ten years and is currently undergoing very rapid changes. In the second aspect, what is the overall change of the Chinese automobile industry from the entire ecological industry, from the upstream supply side of the industrial chain, the midstream OEM side, and the downstream distribution side. Based on this, there is a third topic. What is the potential impact of these changes on the supply chain? The last important topic is, what are the potential risks facing suppliers based on their potential impact? From a Deloitte perspective, what are the countermeasures and recommendations?
First, let ’s take a look at the Chinese auto market during fission. From the perspective of Deloitte ’s long-term focus on the development of the Chinese auto market, the Chinese auto market has experienced a period of rapid growth and also experienced a period of slowing industry growth since 2010. And the industry transformation we are now facing.
Looking to the future, although various consulting companies, including Deloitte, think that there may still be oscillations in 2020, we still have a very optimistic view on the development of the automotive industry in the next decade. We believe that after 2021, the Chinese automobile market is likely to enter a second period of growth. In short, it is based on the second growth of the new four modernization of automobiles, including the related demands for intelligence and sharing in the market. We believe that there will be good opportunities in the segmentation of the Chinese automobile market. These opportunities will promote the Chinese automobile market to enter a second growth period after 2021. The growth drivers of this growth period are different from the previous high-speed growth periods. , But compared to the global automotive market, it is still more optimistic.
Based on the forecast of the overall automotive market development trend, we look a little deeper. From the policy orientation, economic foundation, social drivers, and technological trends, we see that the driving forces that support the further development of China's automobiles are also obvious or clear. Specifically, including the diversification of power, light weight, networking, intelligence, sharing, etc. represented by new energy, these five major trends are brought together to promote the further growth of the automotive market.
Continue to zoom in and see what impact these five technology trends may have on the industry chain? Here is a brief share with you. From the perspective of the industrial chain, from the upstream traditional supplier parts companies, to some new suppliers or manufacturers that have entered, to dealers, shared travellers, and customers, etc., these five technology-driven factors have different effects. . For example, from the perspective of power diversification, the transition to new energy vehicle technology will face the challenges of product line adjustment and product change for traditional suppliers such as powertrains and chassis; for manufacturers, new products are more important than product lines. The impact of the new market layout on the new market, including the choice of technical routes; for dealers, when new energy products have an impact on the original market, the profitability of auto dealers, including the aftermarket profit Models are facing tests. Considering the return rate of new energy vehicles and the unit price of after-sales customers, how the overall after-sales output value supports the operating costs of the entire 4S store and how to develop a new profit model are great challenges; for shared travellers, Also, for new energy vehicles as a proprietary vehicle model, its business model for new energy vehicles also needs to be changed.
In addition to the impact brought by network connectivity, 5G has basically entered the commercial stage in the entire Chinese market. At the same time, there is a trend of policy-driven large-scale influx. This will greatly promote the development of connected vehicles and automotive-based network connectivity. In this situation, are traditional manufacturers, distributors, and suppliers prepared? From the connection of the past industrial chain, the past based on the connection of goods and the Internet, to the next connection based on the Internet of Vehicles, how will our profit model change in the future? It is also a new topic.
Based on various changes, from the perspective of the industrial ecology, the mode of the industrial ecological chain will change. At this stage, it is actually relatively simple and straightforward, basically a linear value chain. Our value is passed from the component supplier to the mainframe manufacturer, then to the distributor, and finally to the customer, forming a traditional linear value chain. Next, the automotive industry will transform the industrial chain through two branches: First, the sharing phase. During the car sharing transition phase, we see that the entire value chain has changed. At this time, it is very likely that the value chain will be directly from the component supplier. Passed on to shared mobility service providers, new cars are no longer just brought to users from traditional automobile manufacturers, but may be passed directly from component manufacturers to many mobile mobility service providers, and then directly from shared value to customers; second, the unmanned phase In the unmanned transition phase, it is very likely that a new supplier of intelligent driving will pass its value directly to the manufacturer, and at the same time to the customer, using another value chain delivery method.
From the perspective of Deloitte, there are three different scenarios for the end of the future automotive value chain: the first scenario is still the situation of returning to the existing traditional current supply chain, passing from new suppliers to manufacturers and then to customers; the second scenario It is very likely that there are four players with different value chains. One player will disappear in the value chain. In the third scenario, it will be directly transferred to customers. There are many manufacturers' direct sales retail business. If this direct sales retail business model is formed in the future, The value chain of manufacturers and distributors may disappear. In general, based on the development of the industry, the future value chain may undergo subversive changes. Under this subversive change, the traditional value chain may disappear. For suppliers, it is necessary to consider that we are in the future. Which end of the chain and what role we will play in the future value chain.
More specifically, what impact does the demand of manufacturers have on the supply chain? First of all, from the perspective of the production chain, there are currently two major trends that have a positive impact on the demand of the upstream or supply chain: First, for all joint ventures, there is now a trend of opening up joint venture shares, which will inevitably make many joint ventures Further increase of production capacity in China is expected to promote the improvement of upstream industries such as parts and components. Second, the development of Industry 4.0 and intelligent factories has prompted manufacturers to increase investment in the production side, which can play a significant role in the entire upstream market. Positive impact. Looking at the terminal again, based on the new four modernizations, terminal products may have some changes. Manufacturers or upstream demand is still there, but demand will generate new changes, such as changes in new energy powertrains, or some completely new requirements, such as Intelligent equipment.
So, what impact does the sales side have on the supply chain? The impact brought by the sales end may be somewhat differentiated. For example, traditional internal combustion passenger cars will be affected. The sales of fuel vehicles will also have downward pressure in the foreseeable years. This downward pressure has negatively affected the demand of the entire industrial chain. influences. In addition, we find that the OEMs are gradually changing from traditional manufacturers to data service providers and travel service providers, and this increase in demand has a positive effect on the point of change.
To sum up, our core point is that, based on manufacturers, we are changing both the front-end, mid-end and back-end development. This poses three challenges for suppliers or the supply chain: First, represented by new energy and energy conservation and emission reduction. Energy revolution; Second, the demand for intelligent interconnection represented by car associations and intelligence. Based on the past hardware manufacturing, the supply chain must also consider how to achieve overall intelligent connection and how to integrate with smart devices and vehicle networking. 3. In terms of intelligent manufacturing, we must meet the challenges of how to make product lines or achieve highly flexible production, how to reduce production costs, and so on.
Under the three driving forces of the energy revolution, intelligent networking, and intelligent manufacturing, we have summarized the specific impact of the seven major parts of the overall component, what is the possible trend in the future. Here is a brief analysis. Trends are divided into three categories: the green plus sign indicates that the category has good growth opportunities, the red minus sign indicates downward pressure, and the gray horizontal line represents the category of supply chain companies that need to grasp the opportunities or driving forces they face. It may become the driving force of the rise, and it may also become the downward pressure.
As can be seen from the figure above, currently, under the influence of various factors such as vehicle power diversification, traditional energy assemblies are under pressure, but they have little impact on new energy assemblies, and the driving force for growth is still relatively strong. . From this point of view, next we look at the overall categories of appearance, interior decoration, and smart devices as a general upward trend. On the other hand, from the perspective of its influencing factors, we see that intelligence and interconnection will have an overall positive impact on the entire industry. Power diversification, lightweighting, and sharing need to be considered how to meet its challenges. It may eventually form an opportunity for growth or potential downward pressure, depending on how we face it.
The above is our analysis of the current fission status of the entire automotive industry chain. Next, let's look at the impact of changes on the automotive industry value chain or the entire ecology.
According to our summary, there are four scenarios for car companies. For any car company's position in the future auto industry or what kind of car company, the overall depends on two dimensions, the first dimension is the vertical dimension. That is, to the extent of the application of emerging technologies, the second is the horizontal dimension, that is, the degree of auto industry's dominance to the industry or the degree to which it embraces emerging business models. Through these two dimensions, we roughly divide the future development of automobile companies Four modes in the picture.
If car companies can embrace technology from emerging companies and actively explore future business models, such car companies are likely to play the role of data and mobility management, which is to transform from traditional manufacturing enterprises to data-based services. Value car companies. For example, Volkswagen wants to become a software company, and Toyota also announced its strategy. He hopes to become a travel company in the future. This is the position of relevant car companies and traditional car companies when they think about their future. In the other three dimensions, some car companies may adopt a positive attitude towards technological change, but they will adopt a more cautious attitude towards business model changes. This type of car company will become a hardware platform provider. The entire industry needs, but from the perspective of business model development, depending on the original business model, it may become a hardware platform provider for other players in the industry chain.
Of course, some auto companies may lag behind in the exploration of business models. Such auto companies may become such companies in the lower right corner, and they have a competitive position in the industry. However, at this time, due to technological barriers, their competitiveness is gradually being weaken. We believe that there are also some car companies. Because of the lag in thinking about technology and the transformation of traditional business models in the industry, they may eventually form a declining giant.
When we are clear about the changes in the future supply chain of car companies, then for the component suppliers, we must pay close attention to their car company customers may play different roles in the industry in the future. For example, if the OEM customer that we are facing belongs to such an enterprise in the upper right corner, and he wants to do industry data and travel management in the future, the requirements for upstream suppliers will also pose high challenges. For another example, some of our manufacturers' customers are at the top left and belong to the hardware platform provider. Our suppliers must consider how, for such customers, how do our suppliers play an innovative and transformative role. Our OEMs have a certain role in the industry. Status, but from the perspective of its business model, there may not have been too many changes. From the perspective of the business model, can we complement its shortcomings, so that we and our partners will have a win-win overall industry competitive advantage.
In short, based on industry changes, what role will OEMs face in the future automotive ecology? Based on such changes, what industry barriers do component manufacturers face? What impact does the overall industry change have on the parts market? The first is the overall industry impact. At present, the overall performance of China's auto parts industry is good. Now compared with the entire OEM industry of the auto industry, our parts and components have experienced a compound annual growth rate of 17.9% in the past ten years. It is a compound annual growth rate of about 14.2% higher than the upstream average.
We also found that starting from 2018, the net profit margin of the entire parts and components industry has decreased. We will briefly review this part of the reason. The first reason is that the OEMs pass to upstream costs, causing changes in upstream production cost pressure; The second point is that labor costs are mainly due to rising production workers. At the same time, the cost of foreign exchange rates due to changes in the international situation over the past two years has also brought some pressure.
We also have another observation. We divide component manufacturers into traditional and new types. From the return on investment, we can see that about 80% of traditional suppliers have experienced a decline in the return on capital in the past three years. On the other hand, for new suppliers, more than 46% of suppliers have increased their return on capital in the past three years. From the perspective of the capital market, the new-type component companies themselves are significantly better than traditional component companies.
When looking at the development potential of an enterprise, we can use its entire market value and income comparison, which is the enterprise market value divided by the multiple of income to measure the development of the enterprise. In the figure, the green line represents the stock price index of auto parts, the dark blue represents the stock price index of auto OEMs, and the light blue represents the Shanghai Composite Index. In the past, the overall capital market's valuation of the component industry was generally low, but this low trend has eased since 2017. The valuation gap between the two different types of companies has continued to narrow, mainly due to Excellent performance of new-type component manufacturers.
From the perspective of price-earnings ratio, this dimension can also see that the overall price-earnings ratio of new-type component manufacturers represented by the Ningde era is higher than that of traditional component manufacturers. From the perspective of the capital market, the capital market is also pushing component manufacturers to embrace the new four modernizations, embrace new business models, and carry out changes in related technologies or business models. Therefore, from the perspective of Deloitte, the entire supply chain industry is facing changes in the overall upstream and downstream of the automotive industry. Therefore, Deloitte proposes the future development direction of suppliers from six aspects:
First, the supplier's own changes, such as whether we can re-examine our current product line. In order to meet the new needs of OEMs, what are the new directions of our traditional product line? At the same time, we should also consider With regard to new energy or new technologies such as mobile internet and smart internet, what supplements can we provide.
Second, the integration of the supplier's industrial chain. From the perspective of the upstream and downstream of the industrial chain, do we build our cost advantage and R & D advantage in the industry through the integration of upstream and downstream resources?
Third, the merger of suppliers and industries. From a horizontal perspective, do we build capacity advantages, cost advantages and efficiency advantages in the industry through horizontal resource integration?
Fourth, from the perspective of the new supplier, if we do not go through our own transformation, can we cooperate with non-competitive industries to meet our downstream or OEM's product requirements related to the transformation.
Fifth, the development of business models, in response to changes in the entire industry value chain, as a supplier at this time, whether to consider developing new business models, such as specific C-end dealers or C-end portal business model.
Sixth, whether it is possible to open up overseas markets from the perspective of itself or with the development of manufacturers.
Based on the above six development strategies, when we implement this strategy, we will face strategic, operational, financial, market, and legal compliance risks.
In terms of the seven categories of the supply chain, since we are in different industrial stages, the corresponding risk areas are different at this time. For traditional energy powertrain supply chain companies, the industry is now facing downward pressure. At this time, the strategy we adopt is likely to be the introduction of new products or business model changes. We are facing risk areas, and we must consider related strategic risks and market risks; In contrast, for the field of smart devices, the industry is currently in a rising phase. At this time, it is necessary to consider the specific strategic risks such as specific new product portfolios, market segmentation competition strategies, and other operational risks encountered during the rising phase Tests on talent retention and operations supply chain management.
In general, the automotive industry is currently undergoing major fission in the whole chain, and this fission has a great impact on the ecology of the entire industry. The future ecology may develop several different scene modes, and based on different scene modes, there will be different types of risks to the entire supply chain. How to effectively manage risks and achieve a good competitive position in the process of car fission development is of vital importance to all of you here.