The era of "easy money" for suppliers is over.

Compared to the traffic at Lei Jun's Xiaomi booth and Yu Chengdong's HarmonyOS Intelligent Driving booth, the supplier booths at this year's Guangzhou Auto Show appeared somewhat deserted. Bosch, SenseTime, DJI, and other supply chain giants that had previously stolen the show at auto shows were all absent from the Guangzhou Auto Show.

Photo Source: Electric Car News

A staff member told Electric Car News privately that the reason for their absence might be the extreme cost compression caused by the price war, leaving automotive suppliers in a difficult position – from giants to small and medium-sized suppliers, none were spared.

Moreover, this supplier disaster has spread to the automotive media industry. A former top automotive self-media blogger Electric Car News knows stated that this year would be his last participation in the Guangzhou Auto Show. He was going to say goodbye to the auto show this time. As for the reason, it was because the number of commercial orders for his account had plummeted, and many automakers' invitation activities only provided "travel expenses," which were barely enough to support staff.

One falling leaf heralds the autumn.

The current automotive price war is still ongoing. Automakers are trying to stimulate consumption through price wars to maintain overall car sales. However, at the same time, more and more suppliers are being pushed to the brink.

Suppliers are absent from the auto show

The 2023 Shanghai Auto Show was the last hurrah for suppliers. From automotive chips to windshields, dozens of automotive industry suppliers aggressively invaded the vehicle pavilion, becoming another force at the auto show besides new cars.

Among them, CATL held two press conferences in a row to showcase cutting-edge technologies and the latest progress to the outside world; Baidu launched a newly upgraded cockpit product matrix at its intelligent vehicle business conference; Tencent held the "2023 TIME DAY·Tencent Smart Mobility Technology Open Day" to comprehensively showcase its "vehicle-cloud integration" technology.

In the field of future mobility, companies like Black Sesame, Xijing, and NavInfo also attended the exhibition. Meanwhile, representative domestic new energy manufacturing enterprises in the new energy sector, such as Hive Energy and CALB, showcased the latest technologies and products in batteries, electric drives, and electronic controls.

A hundred schools of thought contended, creating quite a lively scene. However, just one year later, these suppliers who had previously made "big news" at the auto show have fled the event. Only CATL still has a dedicated booth, and its Qilin battery and Xiaoyao super-hybrid battery face a somewhat lonely stage without competition.

Photo Source: Electric Car News

In fact, it's not just the Guangzhou Auto Show. At the Chengdu Auto Show held two months ago, it was also difficult to see the presence of suppliers.

There are two main reasons for this: First, under the intense competition in the Chinese automotive market, both the Guangzhou and Chengdu auto shows have gradually shifted from "heavy on display" to "heavy on sales." Many brands quickly transitioned to a sales model after their press conferences, with sales staff directly going on stage to sell cars and conduct live streaming sales. The second reason is the butterfly effect of the automotive price war.

First, let's talk about the first reason. On the first day of the Guangzhou Auto Show, also known as Media Day, in addition to the media, the largest group was internet celebrities live-streaming with their phones. However, the functions of many of them have quietly changed. In previous years, there might have been some self-media personalities coming to the scene to film new cars and promote product highlights, but this year, most of them were live-streaming car sales. Moreover, many of these internet celebrities were sales staff from 4S stores.

For automakers, selling cars has become a top priority. Therefore, the auto show has shifted from To B to To C. Suppliers' main customers are automakers, so it is reasonable for them to reduce their participation in auto shows.

Automakers are in a fierce battle, and the supply chain is suffering

The second reason is actually quite simple. Under the influence of the automotive price war, suppliers have generally had a tough time over the past two years. Hosting press conferences, marketing, and inviting media teachers at auto shows is also a considerable expense, so every penny counts.

Don't be fooled by the dominance of top players like CATL. In fact, besides these top players, the profits of other suppliers are being compressed.

Since the beginning of this year, automotive component giants such as Bosch, ZF, Valeo, and Brose have successively announced layoff plans. An employee of Bosch China said that under the transformation to new energy, even Bosch is facing tremendous pressure.

Photo Source: Electric Car News

According to statistics, from January to August this year, the price war resulted in a cumulative loss of 138 billion yuan in overall retail sales of new cars. Automakers are trading price for volume, and the entire industrial chain is also feeling the pressure.

Suppliers are also facing an industry reshuffle. Leading enterprises in the supply chain have greater discourse power and stronger abilities to cope with market price competition. However, suppliers below the middle and waist levels are facing increased operational pressure as automakers continuously lower suppliers' supply prices and extend payment cycles for goods. Some suppliers are even facing the risk of bankruptcy.

The latest data released by the German consulting firm Falkensteg shows that a total of 20 German automotive component suppliers with annual revenues exceeding 10 million euros filed for bankruptcy in the first half of 2024. This number sufficiently illustrates the predicament of suppliers.

Logically, as the number of car ownership increases, it should also drive the supply chain upwards. However, the fact is that with the outbreak of the automotive price war, the overall volume of suppliers has increased, but the unit price has dropped significantly. When quoting prices, they can only accept projects at a loss or risk being outbid by others.

Taking chips as an example, the price of domestic ESP chips has dropped to 10 yuan per piece, forcing overseas chip companies to join the price war. Among them, Texas Instruments' ESP chip has dropped to 12 yuan per piece, down from 1500 yuan in 2021. You read that right, a 99% drop; Texas Instruments' TPS51200DRCR chip has also dropped from 70 yuan to 1 yuan.

On the other hand, self-sufficiency has become the main direction for many large groups. Large companies like BYD and Geely already have sufficiently powerful smart car supply chains, with many technologies at the leading edge. For example, Geely's self-developed Longying No.1, China's first automotive-grade 7nm smart cockpit chip, has twice the comprehensive computing power of the mainstream automotive-grade chip Qualcomm 8155; BYD announced the self-research and production of cabin-and-drive integrated chips with computing power of up to 1000 TOPS and 2000 TOPS.

With automakers becoming self-sufficient, they not only don't have to worry about being "throttled" by suppliers but also increase their bargaining power with suppliers. Through these negotiating abilities, automakers require suppliers to significantly reduce component prices, even below the cost line, which is no longer a novelty in the industry.

In other words, the automotive price war has directly pulled suppliers onto the same boat. Suppliers are faced with only two options: either compress profits or compress costs. However, regardless of which path is taken, "survival" has become the keyword for suppliers, and the era of suppliers making easy money is over.

Overseas: A Promised Land of "Milk and Honey" for Suppliers?

At the Guangzhou Auto Show, automotive suppliers located in Hall 19.1 were holding a series of events called "Cross-border Export of Auto Parts and Accessories." The export of Chinese automobiles is transitioning from "product export" to "supply chain export." The overseas market may become a ray of sunshine for suppliers amid the cracks.

Photo Source: Electric Car News

Taking Vietnam's first independent automotive brand Vinfast as an example, Vinfast currently relies heavily on China's supply chain for electric vehicle manufacturing. Chinese companies such as GuoXuan High-Tech, Feilong, Xinyi Auto, and InBor Electric are all its suppliers or partners.

The cooperation between Vinfast and Chinese electric vehicle component companies also conveys another important message: the competitiveness of Chinese component suppliers overseas is stronger than many people realize.

According to relevant media reports, over the past three to four years, domestic suppliers have accounted for nearly 70% of domestic market orders, leaving only 30% for former foreign suppliers. As engines and transmissions from the fuel vehicle era are replaced by the three-electric system, smart cockpits, and autonomous driving in the smart electric vehicle era, becoming new key components, the Chinese automotive industry is forming its own competitive barriers.

Although suppliers are scared off by the intense competition at domestic auto shows, they are stirring up a new wave of industry reshuffling overseas with their strong competitiveness.

Especially at last year's Munich Auto Show, the number of Chinese exhibitors doubled compared to previous years. Suppliers such as CATL, EVE Energy, Horizon Robotics, and Hesai Technology all participated. According to German media statistics, 41% of Munich Auto Show exhibitors were headquartered in China.

Nowadays, after a series of reforms and transformations, the overall strength of domestic component enterprises has been significantly enhanced, and some have become industry leaders. For example, CITIC Dicastal, as the world's largest aluminum wheel hub manufacturer; Fuyao Glass, as the world's third-largest automotive glass company; Yanfeng Automotive Interiors, as a global leading automotive interior supplier; and Linglong Tire, as a well-known tire manufacturer exported worldwide, have all become leading enterprises in their respective segments.

China's automotive "going out" refers not only to complete vehicles but also to the overseas expansion of the automotive supply chain, which should form a complementary path with the overseas expansion of complete vehicles. While the former needs the support of the latter to achieve global expansion by exporting complete vehicles, the latter also assists Chinese automakers going overseas while serving international automakers in the global market.

For suppliers, instead of getting caught up in the gains and losses of the domestic market, it is better to take a chance and carve out a larger piece of the global pie. Like BYD, they can become disruptors in the overseas market.

Final Thoughts

Compared to new cars at auto shows, supplier pavilions are generally the least popular. However, when we enjoy the new cars brought by auto shows, let's not forget the suppliers behind them who are driving the progress of Chinese automotive technology. The Guangzhou Auto Show runs until November 24. If you have time, you might as well take some time to visit the suppliers and learn about these behind-the-scenes players.

Cover Photo Source: Electric Car News

Source: Lei Technology