Caixin
May 20, 2021 05:59 AM
BUSINESS & TECH

Air Conditioning Giant Midea Starts Making Auto Parts

In the first quarter of 2021, China’s shipments of air conditioners declined 5.8% from 2019.
In the first quarter of 2021, China’s shipments of air conditioners declined 5.8% from 2019.

Chinese home appliance giant Midea Group’s (000333.SZ) auto parts unit started producing actuating systems, thermal management systems, and assisted and autonomous driving systems for cars, the company said Tuesday.

Midea is among a flood of Chinese companies in nonautomotive industries that are rushing into the white-hot new-energy vehicle (NEV) market. Growth in the home appliance industry has turned sluggish, pushing companies to explore other opportunities, analysts said. In the first quarter, China’s shipments of air conditioners, Midea’s core product, declined 5.8% from 2019.

Now is the traditional peak selling season for air conditioners, but sales are not picking up, suggesting that the market is saturated, home alliance industry analyst Liu Buchen said. Many publicly traded home appliance companies, facing pressure in the capital markets, are trying to shed their “home appliance” label, he said.

For these new players, NEVs offer an accelerating track, industry experts said. Data from the China Association of Automobile Manufacturers show that from January to April, China produced 750,000 NEVs, more than triple from same period last year.

Midea hopes to transfer its experience in home appliance manufacturing to the auto industry, Fu Yongjun, the head of Midea’s Welling Auto Parts unit, said Tuesday at a press conference. Midea already produces oil pumps and motors for its appliances, which correlates with some core auto parts, said Xu Hailiang, vice president of TÜV SÜD Greater China, a third-party testing and certification institution.

Changes in the automotive supply chain also provide opportunities for new players. Compared with the relatively closed supply chains of the past, NEV manufacturing is more modular-based, creating a relatively lower entry threshold, industry participants said. With a stable cash flow and mature production base, it’s a natural choice for home appliance makers like Midea to join the race, Xu said.

However, none of the four home appliance makers entering the auto industry is attempting to produce entire vehicles. Home appliance makers generally do not have an advantage in auto production, making it unlikely they would dive into vehicle manufacturing at this stage, analysts said.

Hisense Home Appliances Group Co. Ltd. (000921.SZ) is also testing the waters in auto parts manufacturing. In March, Hisense spent $200.7 million for a controlling stake in Sanden Holdings Corp., a Japanese maker of vehicle air conditioning systems.

Dong Mingzhu, CEO of the home appliance maker Gree Electric (000651.SH), personally invested $30 million to become the second-biggest shareholder of Zhuhai-based electric vehicle-maker Yinlong in 2016.

Founder Huang Hongsheng of TV maker Skyworth Group Co. Ltd. (00751.SZ) set up the auto company Skywell in 2010 and then acquired and merged bus manufacturer Nanjing Golden Dragon, shifting its business from traditional fuel-powered buses to NEVs. Both are the founders’ personal investments, not related to their publicly listed companies.

Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com)

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