According to the news reported by the Zhitong Finance and Economics APP, Changjiang Securities released a research report stating that the rise of China's new energy intelligent automobiles has bred a round of international competitive auto parts enterprises. In comparison, foreign auto parts have low capital expenditure, high costs, and gradually declining technology, while domestic auto parts have launched a new round of expansion based on comprehensive competitiveness. Now is the time for Chinese high-quality auto parts to go global as they accelerate at the global level in terms of space, path and profit, and are expected to become global leaders.

When the sky is high, birds fly. It is the trend for auto parts to explore overseas markets.

By 2023, the overseas automobile production will reach 59.49 million vehicles, accounting for more than 60% of the global production. Meanwhile, the value of auto parts per vehicle is relatively high, and the overseas auto parts market is about 3.3 times larger than the domestic market. The rise of China's new energy intelligent automobiles has bred a round of international competitive auto parts enterprises. In comparison, foreign auto parts have low capital expenditure, high costs, and gradually declining technology, while domestic auto parts have launched a new round of expansion based on comprehensive competitiveness.

Taking Fuyao and Minth as examples, it is promising for China to establish multiple global leaders in the segmented market.

Domestic outstanding auto parts manufacturers, such as Fuyao and Minth, have gradually become global leaders after they have established a certain market share in the domestic market and reached advanced levels of cost control and technology. By replicating the successful management strategies according to their specific geographical location, they have achieved high profits overseas. In the fields of interior and exterior decoration, chassis, and headlights, domestic independent leading brands' market share has exceeded 15%. As a result, they have outperformed foreign auto parts manufacturers in terms of scale, technology, and manufacturing processes, making them the new global leaders. Taking Xinquan as an example and comparing it with Faurecia, the former has significantly higher profits than the latter, thanks to its continuous innovation in automation and technology, and has been expanding abroad more rapidly after winning more domestic orders.

From Tesla to Stellantis and then to self-owned brands, the three-tier expansion of auto parts overseas.

The overseas expansion of auto parts based on the needs of automakers has a clear growth path. The Tesla industrial chain took the lead in going global, with a current production capacity of 2.35 million. With the release of new vehicles and platforms, it is expected to enter a new stage of development. Stellantis is the fourth largest automaker in the world and one of the most profitable automakers globally. Its production capacity has shifted from developed countries to developing countries, and its platform bidding process has begun to involve many Chinese suppliers, which might be the next source of growth. Based on Tesla and Stellantis, Chinese auto parts manufacturers are accelerating their expansion into North America and Europe. The overseas sales of domestic independent automakers have increased rapidly, and they have gradually started investing overseas, which is expected to help the growth of auto parts business overseas in the next stage.

Constructing competitiveness with low-cost regions from North America to Europe

North America and Europe account for about 37% of the global market, making them the main target markets for the overseas expansion of auto parts. The manufacturing cost in Mexico is approximately 75% of that in the United States, and in recent years, the demand for American car makers and auto parts has shifted noticeably to Mexico; by 2023, the automobile production has increased by 14% year on year, reaching 3.78 million vehicles. Morocco, Hungary, Serbia, and other Eastern European countries produce at a cost of less than 70% of Germany's, with Western European production showing a compound decline of 1.7% over the past decade. This round of overseas expansion for Chinese auto parts manufacturers mainly focuses on Mexico in North America and Eastern Europe in Europe, and relies on low-cost factors to beat the high-cost competition of auto parts overseas.

With the increasing maturity of technical management, overseas profits have started to rise.

Chinese auto parts manufacturers have accumulated significant expertise over time in managing overseas operations, and have cultivated a group of outstanding management talents, which has substantially improved their operational capabilities. This round of expansion for auto parts overseas exports advanced manufacturing processes and technologies, such as automation, which puts them at a greater competitive advantage over foreign auto parts manufacturers. At the same time, overseas demand is stable, leading to inflation followed by soaring auto parts prices. Zhongding, Junsheng, Lingyun, Moshou and other companies' overseas business profitability is rebounding considerably as their auto parts pricing for overseas sales has increased significantly compared to those of domestic counterparts, thanks to their stable management strategies which might exceed domestic standards overseas.

Investment suggestion: 当前is the right time for Chinese auto parts manufacturers to go global; as domestic high-quality auto parts become global, acceleration based on space, path and profitability will support a new round of growth and create global leaders.

A new round of growth for domestic auto parts is supported by space, path, and profitability in going global, and is expected to create a new global leader. The basis of this round of auto part export lies in the comprehensive advantages of technology, cost, and scale. In terms of path, Tesla is connecting with Stellantis to lead domestic independent auto companies overseas. In terms of region, competitiveness will be further enhanced based on low-cost regions. The accumulation of experience from past overseas exports has begun to show, with many auto parts companies already showing significant improvements in overseas profitability. Key recommendations include Ningbo Tuopu Group, Jiangsu Xinquan Automotive Trim, Changzhou Xingyu Automotive Lighting Systems, Bethel Automotive Safety Systems, Minth Group, Fuyao Glass, Ningbo Xusheng Group, and others, while IKD Co., Ltd. should be watched closely.

Risk Warning: 1. Slower growth in downstream auto sales than expected; 2. Increased market and product competition risks; 3. Risks of global operation; 4. Risks of squeezed profit due to significant increase in raw material costs.