Automotive_China_from_MelchersRaffel

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This paper intends to share the market landscape overview of automotive industry in China and our main perspectives on the future development in this sector.

It is also designed to present the huge possible business opportunities but at the same time, to highlight the key strategic challenges that every company should watch out when participating in the market.

Published in: Business, Automotive
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Automotive_China_from_MelchersRaffel

  1. 1. www.raffel.eu Automotive Trends in China Strategic and M&A Implications for OEM and Parts Suppliers Hong Kong / Shanghai / Munich, June 2013 Raffel GmbH  80333 München  Tel +49 89 242 086 590  Email info@raffel.eu © Raffel GmbH Corporate Development All rights reserved. Proprietary and confidential.
  2. 2. www.raffel.eu 1 Raffel GmbH  80333 München  Tel +49 (89) 242 086 590  Email info@raffel.eu © Raffel GmbH Corporate Development All rights reserved. Proprietary and confidential. Automotive_CHINA_from_MelchersRaffel.pptx1 Index 0. Preliminary remarks & Executive Summary 2 1. Market size and growth 5 2. Market structure and competition – Carmakers 14 3. Market structure and competition – Automobile parts manufacturers 26 4. Market structure and competition – Automobile parts sub-sector 31 5. Future challenges & developments 41 6. M&A landscape 45 About MelchersRaffel 53
  3. 3. www.raffel.eu 2 Raffel GmbH  80333 München  Tel +49 (89) 242 086 590  Email info@raffel.eu © Raffel GmbH Corporate Development All rights reserved. Proprietary and confidential. Automotive_CHINA_from_MelchersRaffel.pptx  This paper intends to share the market landscape overview of automotive industry in China and our main perspectives on the future development in this sector  It is also designed to present the huge possible business opportunities but at the same time, to highlight the key strategic challenges that every company should watch out when participating in the market  The data shown in this paper is for reference only to understand the general trend and competitive environment, whereas some of the numbers being best estimates. Examples given here are selected for illustrative purpose and should not be considered as an exhaustive list  Automotive parts sub-sector information for e.g. plastic parts, electronics, metal parts etc. are available upon request  This paper is a brief excerpt. The full document has about 50 to 60 pages. Preliminary Remarks 2
  4. 4. www.raffel.eu 3 Raffel GmbH  80333 München  Tel +49 (89) 242 086 590  Email info@raffel.eu © Raffel GmbH Corporate Development All rights reserved. Proprietary and confidential. Automotive_CHINA_from_MelchersRaffel.pptx Market size and growth  China is the largest sales and production country for automobiles in the world by far. Sales volume has reached 19.3 million units in 2012 – which are mainly sold domestically (c.95%) • China is the leading production base for passenger car and the second one for commercial vehicle, just behind US  Despite the growth rate may start to slow down in the next few years, China still enjoys a faster growth rate comparing to other European/Western countries, mainly driven by the increasing per capita income and auto penetration Market structure and competition – Carmakers  China automobile is a highly concentrated market which is dominated by the State-owned enterprises (incl. joint-venture with foreign companies). Typically, a leading auto Chinese company carry more than 1 foreign brand through multiple joint-venture subsidiaries, in additional to their self-owned brands  Chinese local car-makers are still in early development stage whereas most of the local self-owned Chinese brands are competing heavily in the low-end segment while the premium & luxury segments are mostly dominated by the foreign brands.  Chinese consumers regard fuel consumption, safety and functionality as the most important buying factors for car-purchases, which may explain why foreign brands are more preferred  Through joint-venture setup in China, foreign passenger car brands enjoy a large market share, c. 70% of the sales volume; while the local brands only have c.30%. For commercial vehicles, both bus and truck sub-segments demonstrated high concentration with 80-90% share dominated by top 6-10 players  Top German auto brands are quite positive about China, which can be reflected from the heavy investment in China. It is expected the future growth rate of sales volume in China is about 150% from 2010 to 2020  Both foreign and Chinese carmakers are expanding their R&D budgets and facilities, indicating the shift in technological and higher quality focus Market structure and competition – Automobile parts manufacturers  Chinese auto parts market has been growing rapidly at c.30% in the past few years, and the top local players have a comparable size to top German companies Executive summary – 1/2 3
  5. 5. www.raffel.eu 4 Raffel GmbH  80333 München  Tel +49 (89) 242 086 590  Email info@raffel.eu © Raffel GmbH Corporate Development All rights reserved. Proprietary and confidential. Automotive_CHINA_from_MelchersRaffel.pptx Market structure and competition – Automobile parts manufacturers (cont‘)  In contrast to the carmaker market, Chinese automobile component market is very fragmented with about 30,000 companies • Each automotive supplier sub-sectors has a unique profile – e.g. plastic parts, electronics, metal parts etc. and have to be analysed accordingly. For main sub-sectors, the information is available from MelchersRaffel. Future challenges & developments  Carmakers: Despite the huge potential and high growth in China, international companies are expecting increasing risk in policy changes and IP protection, and also more intense competition in the mid-range segment; while the local companies would have to overcome challenges in capacity management, stronger competition in low-end segment and improving the local design & branding.  Automobile parts manufacturers: In order to capture the big pie in China, European parts suppliers have to overcome challenges in client relationship building, communicating value & being more responsive M&A landscape  In the automotive parts market, since foreign companies can set up wholly foreign-owned subsidiaries and hence the M&A activity is relatively less, but more cases are expected in order to gain faster access to the local critical clients, or else it would be difficult/ too late once local Chinese companies have improved their production techniques  Local Chinese auto companies have been very active in M&A deals in the past few years, in both domestic and cross-border areas. Most of the major deals are driven by local Chinese companies acquiring foreign companies especially component suppliers for vertical supply chain benefits and gaining knowhow/ technological capabilities, and hence improving quality level.  In contrast, foreign big auto groups acquiring local Chinese car-maker companies cases are limited due to the protectionism mentality of the Chinese government  In near future, M&A deals involving Chinese companies are expected to increase further, mainly driven by improving financial capabilities of local Chinese carmakers, Increasing industry consolidation and rising priority of higher quality/ technology for local Chinese carmakers Executive summary – 2/2 4
  6. 6. www.raffel.eu 5 Raffel GmbH  80333 München  Tel +49 (89) 242 086 590  Email info@raffel.eu © Raffel GmbH Corporate Development All rights reserved. Proprietary and confidential. Automotive_CHINA_from_MelchersRaffel.pptx5 ▐Market size and growth
  7. 7. www.raffel.eu 6 Raffel GmbH  80333 München  Tel +49 (89) 242 086 590  Email info@raffel.eu © Raffel GmbH Corporate Development All rights reserved. Proprietary and confidential. Automotive_CHINA_from_MelchersRaffel.pptx Currently, China is the largest auto production country and the expected growth rate in the next few years is faster than other European/Western countries 6 Source: IAPEChina, MelchersRaffel analysis By 2050 it is estimated auto production in China will have grown to about 40 million units per year. Urbanization Rate in % - 1980-2030 Auto production forecast for the five worldwide leading manufacturing countries 2010-2015 2010 2013e 2015e 14mn Units 8mn 9mn 5mn 3mn 19mn 10mn 9mn 6mn 5mn 21mn 10mn 9mn 6mn 6mn (2050: x2) Auto production in China vs. Other Countries (incl. commercial car and passenger car) CAGR: 10-13 11% 8% 0% 6% 19% 5% 0% 0% 0% 10% CAGR: 13-15
  8. 8. www.raffel.eu 7 Raffel GmbH  80333 München  Tel +49 (89) 242 086 590  Email info@raffel.eu © Raffel GmbH Corporate Development All rights reserved. Proprietary and confidential. Automotive_CHINA_from_MelchersRaffel.pptx China is the leading production base for passenger car and enjoys the highest growth rate at 19% in the past few years 7 15.5 5.4 3.3 8.6 4.1 - 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 China Germany India Japan USA 2007 2008 2009 2010 2011 2012 Passenger car production by country, 2007 – 2012 Mn units Mn units CAGR 07 – 12 19% -1% 14% -3% 1% Source: International Organization of Motor Vehicle Manufacturers; MelchersRaffel research Passenger car
  9. 9. www.raffel.eu 8 Raffel GmbH  80333 München  Tel +49 (89) 242 086 590  Email info@raffel.eu © Raffel GmbH Corporate Development All rights reserved. Proprietary and confidential. Automotive_CHINA_from_MelchersRaffel.pptx China is not only the largest global production site, but it also has a huge growth potential driven by the increase in car penetration and rising GDP per capita 8 R² = 0.7935 - 10,000 20,000 30,000 40,000 50,000 60,000 - 100 200 300 400 500 600 700 GDP per capita versus passenger cars unit per 1000 people Source: Worldbank; MelchersRafffel analysis Passenger cars unit per 1000 people GDP per capita, 2010 (current US$) Australia Denmark Sweden China GDP per capita is estimated to reach c. USD 50k by 2050, which implies a 8-10 times increase in penetration UK UAE Singapore Hong Kong Spain Germany Czech Republic Greece Malaysia S. Korea Italy New Zealand Brazil Mexico Russia Poland Netherlands Japan Austria Finland Chile Turkey S. Africa Thailand China Morocco Cambodia Egypt Bangladesh Philippines India Sri Lanka China by 2050
  10. 10. www.raffel.eu 9 Raffel GmbH  80333 München  Tel +49 (89) 242 086 590  Email info@raffel.eu © Raffel GmbH Corporate Development All rights reserved. Proprietary and confidential. Automotive_CHINA_from_MelchersRaffel.pptx Key factors for future trends in China automobile market Overall the automotive industry in China is expecting to grow further, which is in particular driven by the political, economic and social developments in China 9 Political ▐ Government is planning to have 2~3 huge players of >3 mn capacity and 4~5 >1.5mn capacity. ▐ Electric vehicles was identified as one of the 7-strategic industries in the government 5-year plan ▐ Lots of subsidies is provided to new energy car, ■ E.g. Shanghai government is offering RMB40k + per new energy car purchase & free license Economic Social Technological Legal Environmental Source: MelchersRaffel research Growth impactAspect Key factor ▐ License plates can cost more than the car ■ Shanghai is one of four Chinese cities that limit car purchases by imposing quotas on registrations. The prices paid at Shanghai’s license auctions in recent months—RMB90k ▐ Pollution control ■ Beijing Environmental Protection Bureau released two sets of Euro VI equivalent emission standards for heavy-duty trucks and for non-road machineries in Apr 2013 ▐ Increasing per capita disposable income is driving passenger car demands since they are more preferred than buses or other mass transit vehicles ▐ The export of local brand cars to emerging market including Middle East and Africa has large volume increment in recent two years. ▐ Increasing urbanization leads to higher demand for both commercial and passenger cars ▐ Local Chinese carmakers successfully created electric and hybrid energy saving vehicles ▐ Chinese OEM suppliers can make their own IP protected accessories in parts of the car. e.g. BYD has the advantage of their lithium battery in the world. (Replacement)
  11. 11. www.raffel.eu 10 Raffel GmbH  80333 München  Tel +49 (89) 242 086 590  Email info@raffel.eu © Raffel GmbH Corporate Development All rights reserved. Proprietary and confidential. Automotive_CHINA_from_MelchersRaffel.pptx10 ▐Market structure and competition – Carmakers
  12. 12. www.raffel.eu 11 Raffel GmbH  80333 München  Tel +49 (89) 242 086 590  Email info@raffel.eu © Raffel GmbH Corporate Development All rights reserved. Proprietary and confidential. Automotive_CHINA_from_MelchersRaffel.pptx Top 10 players 87% Others 13% At company level, passenger car market in China is highly concentrated whereas top 10 companies have accounted for about 90% share in sales volume, mainly SOEs 11 2% 3% 3% 3% 4% 8% 11% 14% 17% 22% Great Wall Chery Brillance JAC GAC BAIC Changan FAW DongFeng SAIC Automobile sales volume market share in China, 2011 % of units Market share by player by ownership type, 2011 % of units Central SOE Provincial SOE Private enterprise Total: 18.5mn Source: CAAM; Bank analyst reports; MelchersRaffel analysis Passenger car + Commercial vehicle
  13. 13. www.raffel.eu 12 Raffel GmbH  80333 München  Tel +49 (89) 242 086 590  Email info@raffel.eu © Raffel GmbH Corporate Development All rights reserved. Proprietary and confidential. Automotive_CHINA_from_MelchersRaffel.pptx Examples – Multi-brand structure of typical Chinese Auto companies Typical leading local Chinese companies carry multiple foreign brands, in additional to their self-owned brands 12 Sino-foreign JV Sino-sino local JV Local self-owned brand Dongfeng Nissan 1 2 3 4 Sino-foreign JV Sino-sino local JV Local self-owned brand 1 2 3 4 6 5 Due to historical legal limitation, All foreign brands manufactured in China are produced through joint ventures with Chinese partners. Big Chinese Auto groups usually carry > 1 foreign brand, in additional to their self-owned local brands. Source: Company website;, MelchersRaffel research Provincial SOE Central SOE Passenger car + Commercial vehicle
  14. 14. www.raffel.eu 13 Raffel GmbH  80333 München  Tel +49 (89) 242 086 590  Email info@raffel.eu © Raffel GmbH Corporate Development All rights reserved. Proprietary and confidential. Automotive_CHINA_from_MelchersRaffel.pptx Major passenger car brands in China by price segment Foreign brands are dominating the more high-end & luxury car segments while majority of the local carmakers are still competing heavily in the mass low price segments 13 > RMB 1.5mn (>EUR 185k) Dominated by foreign brands, in particular sports car < RMB 100k (<EUR 12k) Mainly local Chinese brands with lower-quality products RMB 100k – 500k (EUR 12k – 62k) RMB 500k – 1.5mn (EUR 62k – 185k) Generalization, not exhaustive Imported foreign brands/ Foreign-Sino JV brands Local Chinese auto brands Mass low-end Mid-range Premium Luxury Source: Company website;, MelchersRaffel research Passenger car
  15. 15. Automotive_CHINA_from_MelchersRaffel.pptx www.raffel.eu 14 Raffel GmbH  80333 München  Tel +49 (89) 242 086 590  Email info@raffel.eu © Raffel GmbH Corporate Development All rights reserved. Proprietary and confidential. FULL DOCUMENT IS AVAILABLE UPON REQUEST Please send an email to rcd@raffel.eu with your name, position and company name. Thank you for your interest. 14
  16. 16. Automotive_CHINA_from_MelchersRaffel.pptx www.raffel.eu 15 Raffel GmbH  80333 München  Tel +49 (89) 242 086 590  Email info@raffel.eu © Raffel GmbH Corporate Development All rights reserved. Proprietary and confidential.  Founded: 1806 in Bremen, Germany  Group Companies: more than 50 in the world – focusing on Europe, Southeast Asia, and Greater China  Branches and representative offices in Asia: 25  Other locations: South Africa, Ethiopia  Employees in Europe: ca. 600 (ca. 500 in Germany)  Employees worldwide: 1,700 (1,000 in Asia).  Experience in advising companies in the larger middle class. The employees of Raffel CD have both industrial and consulting experience in the international environment.  For M&A activities (purchase and sale of companies and business units), Raffel CD combines the necessary M&A technique, strong strategy and market expertise. This allows the creation of outstanding value for the customer. MelchersRaffel is the company for successful Euro-Asia endeavours  Access to Know-how and network of 1,700 employees in technology, consumer and luxury markets in Europe and in 25 offices in Asia  Experience from 150 years of successful business in China  Offices in Shanghai, Hongkong, Singapore and Munich, Germany  Client Service: Strategy Business Development Designing Business Models M&A Acquisition and Desinvestment of Companies Structuring Joint Ventures and Alliances  Contact: www.melchersraffel.com E-mail: info@melchersraffel.com
  17. 17. www.raffel.eu 16 Raffel GmbH  80333 München  Tel +49 (89) 242 086 590  Email info@raffel.eu © Raffel GmbH Corporate Development All rights reserved. Proprietary and confidential. Automotive_CHINA_from_MelchersRaffel.pptx MelchersRaffel has offices and access to networks in all relevant Asian countries MelchersRaffel Shanghai 13 floor, East Ocean Centre 588 Yan-An Road (East) Shanghai 200001 / PRC sha@melchersraffel.com MelchersRaffel Ltd. Hongkong Shun Tak Centre West Tower 168-200 Connaught Road Central Hong Kong hkg@melchersraffel.com MelchersRaffel Singapore 101, Thomson Road # 24-01/05 United Square Singapore 307591 sin@melchersraffel.com office location of the Melchers group office location of MelchersRaffel

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