In Depth: How Shift to EVs Risks Sidelining Auto Parts Giants

[para. 1] China’s automotive industry is undergoing a significant transformation with a shift towards new-energy vehicles (NEVs), placing pressure on traditional foreign spare parts manufacturers to adapt their product offerings. The rise of NEVs means that these legacy parts-makers face the risk of being marginalized unless they can innovate to keep pace with the evolving market.

[para. 2] The change stems from two major developments: an increased emphasis on software that influences the driving experience and the hardware transition away from components that foreign manufacturers traditionally dominate.

[para. 3] Recent data from the China Passenger Car Association reveals that between July and November this year, over half of the vehicles sold in China were either fully electric or plug-in hybrids. This solidifies the NEV category’s significant presence in the market.

[para. 4] This shift creates opportunities for Chinese domestic suppliers to gain a stronger foothold in the automotive supply chain, previously dominated by foreign entities.

[para. 5][para. 6] Contemporary Amperex Technology Co. Ltd. (CATL), a Chinese battery manufacturer, ranks among the top global auto parts suppliers, indicating a shift in the industry. In first place is Germany’s Robert Bosch GmbH, followed by ZF Friedrichshafen AG, and Canada’s Magna International Inc.

[para. 7] Despite their prior dominance, established players like ZF have been issuing profit warnings and planning job cuts, indicating the challenges they face with the transition to NEVs, where their expertise in combustion engine components offers less of an advantage.

[para. 9] Traditional firms have a chance to reposition themselves by leveraging their expertise in supply chain management and increasing investment in research and development (R&D) for NEVs.

[para. 10][para. 11][para. 12] Software integration has become crucial as suppliers like Bosch and ZF increasingly blend software and hardware for unified automotive systems. However, with NEVs, control is shifting towards software systems developed internally by car manufacturers or dedicated software firms, changing the dynamics of supplier-manufacturer relationships.

[para. 13][para. 14] The trend towards "software-defined vehicles" enables automakers to enhance vehicle performance and improve product innovation through software updates without altering physical components.

[para. 15][para. 17] Such trends are forcing traditional parts-makers to cede some development right to automakers. With more centralized control over software, traditional firms may be reduced to being hardware providers as they adapt to the NEV-centric market.

[para. 18][para. 20] The transition challenges firms like ZF, whose prominent products are less indispensably competitive in the NEV landscape, demanding experimentative approaches from traditional parts-makers to sustain their business models.

[para. 21] This changing business environment is exacerbated by weaker performances from some multinational companies’ Chinese ventures as local brands increase their market share.

[para. 22][para. 23] Multinational companies are responding by granting more R&D autonomy to local branches, with Bosch in China developing technologies for global markets.

[para. 24][para. 28] Companies are leveraging partnerships and investments in smart driving systems to grasp new opportunities in the evolving market. For example, Aptiv PLC has acquired a substantial stake in a Chinese self-driving tech company, and Bosch has collaborated with startups to work on smart driving systems.

[para. 29][para. 30] These auto part-makers rely on deep manufacturing experience and advanced quality control to remain competitive. They can serve the global expansion strategies of Chinese automakers, who are increasing investments in markets like Europe to expand NEV manufacturing.

In conclusion, China’s pivot to NEVs is reshaping the auto part industry. Traditional foreign suppliers must innovate swiftly to adapt, with opportunities arising through software integration and strategic collaborations. Despite challenges, the expertise in global supply chains offers them a chance to maintain, and even expand, their market influence.