The Chinese Automotive Supplier Report China

IHS AUTOMOTIVE The Chinese Automotive Supplier Report China

2016 edition supplierbusiness.com

REGIONAL REPORT China SAMPLE IHS Automotive SupplierBusiness | The Chinese Automotive Supplier Report

Contents Macroeconomic Overview 6 Economic review 7 Economic outlook 8

Light vehicle sales review and outlook 10 Market review: developments and policies 11 Congestion and pollution regulation 11 Market Outlook 14 Geography of demand 15 Shifting tastes and pricing 15 Consumer preferences 16

Light Vehicle Production Review and Outlook 17 China car industry roots 18 Overcapacity risk? 19 Production Outlook 20 Evolving geography of Chinese car production 21 Outlook for exports 22

OEM activity and supplier management 24 Changes in market structure 25 Private enterprises 25 First-movers 26 ––Ford 27 ––Premium OEMs’ activity 27 ––Japanese carmakers 27 ––Renault-Nissan 28 ––Chrysler-Fiat 28 ––Hyundai-Kia 28 Increasing OEM fragmentation 29 Sourcing from an underdeveloped supply base 30 Structural changes 31 Sourcing from the local supply base 31 Domestic carmakers’ sourcing 32 Foreign OEM sourcing 32 Imports 33

Top-10 OEM Overview 34 VOLKSWAGEN 35 CHANGAN (including Ford)SAMPLE 37 DONGFENG (incl. Renault-Nissan and PSA) 39 SAIC-GM-WULING 42 GENERAL MOTORS 43 HYUNDAI-KIA 44

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BEIJING AUTO (incl. Beijing-Benz) 45 TOYOTA 47 FAW 49 GREAT WALL 52

Recent Developments and Outlook for the Chinese Supply Base 54 Profitability under attack 55 Supply base structure 55 Foreign suppliers 56 Challenges 57 M&A activity 58

Supplier Profiles - Global Tier-1 China Operations 59 Aisin Seiki 60 Autoliv 68 Bosch 79 Continental 89 Delphi 101 Denso 111 Faurecia 121 GKN 133 Johnson Controls 146 JTEKT 156 Lear 162 Magna 170 Magneti Marelli 181 MAHLE 189 Sumitomo Electric 200 Valeo 211 Yazaki 218 ZF 224

Supplier Profiles – Local Companies 237 Changchun Bulb 238 China VIE 239 China Wheel 243 Dong’An Power 244 Dongfeng Technology 245 Double Coin 251 Double Star 255 Fangda Tegang (formerly Jiangxi Changli) 259 FAWAY 263 FAWER 269 Fengfan 276 Foshan Lighting SAMPLE280 Fujian Longxi 284 Fuyao 288 Greatoo 293 Guangdong Hongteo 294 Guangdong Hongtu 297 Guizhou Guihang 300 Guizhou Tyre 305 Hangsheng Electronics 306 Hangzhou Advance 310 Hangzhou ZhongCe 314

Hefei Axle 317 Henan THB 320 Henan Xixia 326 Hengli (Yueuang) 330 Jiangnan MPT 333 Jiangsu Sihong 328 Jiangsu Wenguang 339 Jiangyin Xietong 342 Jinheng 343 Joyson Electronics 348 Kunming Yunnei 352 Linhai 356 Liuzhou Lihe 360 Lizhong Wheel 361 Longji Machinery 365 Nanning Baling 368 Ningbo Huaxiang 372 Ningbo Shenglong 377 Ningbo Shuanglin 380 Ningbo Swell 384 Ningbo Tianli 387 Ningjiang Shanchuan 388 Pacific Forging 389 Prestolite 390 Qingdao Yellowsea 394 Quanchai 396 Shandong Houfeng 400 Shandong Huijin 403 Shandong Laidong 404 Shandong Linglong 407 Shandong Sangong 408 Shandong Tongchuang 411 Shandong Xinya 412 Shye Shyang 413 Sichuan Bohong 417 South China Tire 419 Spacekey 421 Wuhu Bethel 422 Wuxi Diesel 425 Xi’an Brakes 426 Yangzhou Shenzhou 429 Yu’an-Sokon 430 Yuhuan Kailing 433 Zhejiang Wanda SAMPLE436 Zhenting Jinggong 440 Figures Figure 1: China Real GDP Per Capita, (USD) and Growth Rate: Real GDP Per Capita (%) (2011–2019) 9 Figure 2: China’s Light vehicle Sales forecast by regional origin 14 Figure 3: China light vehicle production volumes and installed capacity 19 Figure 4: Map of China’s five main automotive clusters (North, South, Shanghai, Central, Western) 22

Tables Table 1: China Top-10 OEMs by Design Parent Production Forecast (2014–2019) 18 Table 2: Top 24 Light Vehicles Manufactured in China with Forecast (2016–2019) 21 Table 3: Production Capacity for top 10 Municipalities in China 22 Table 4: List of foreign joint-venture partnerships operating in China 29 Table 5: Top 10 Manufacturers in China in 2000 and 2014 30 Table 6: Volkswagen China Light Vehicle Production (2014–2019) 35 Table 7: Changan (including Ford) Light Vehicle Production (2014–2019) 37 Table 8: Dongfeng (incl. Renault-Nissan and PSA) Light Vehicle Production (2014–2019) 39 Table 9: SAIC-GM-Wuling Light Vehicle Production (2014–2019) 42 Table 10: General Motors China Light Vehicle Production (2014–2019) 43 Table 11: Hyundai-Kia China Light Vehicle Production (2014–2019) 44 Table 12: Beijing Auto (incl. Beijing-Benz) Light Vehicle Production (2014– 2019) 45 Table 13: Toyota China Light Vehicle Production (2014–2019) 47 Table 14: Volkswagen China Manufacturers Light Vehicle Production (2014–2019) 49 Table 15: Great Wall Light Vehicle Production (2014–2019) 52 Table 16: Key recent investment events involving Chinese suppliers, including local investments 58

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CHAPTER THREE Light Vehicle Production Review and Outlook

• Following the astonishing growth of 2008-2013, the slowing demand is affecting production levels in the short term with an increasing number of plants operating well below optimal capacity

• Continued growth in capacity with foreign and domestic investment despite a slowing market has created concerns about the sustainability of the operations of some automakers and the profitability of car production in China.

• Local authorities at all levels have contributed to the capacity growth as they seek to attract automotive investment via various forms of incentives for automakers. Incentives are being offered to both privately owned and state-owned enterprises (SOEs), which in some instances provides some 20% of the carmaker’s bottom line.

• Despite short-term concerns and volatility, the outlook to 2020 for light vehicle production remains largely positive as local demand should support the achievement of the 30 million unit threshold by 2020. Increased localization is occurring both in premium segments and at the bottom end of the market as foreign carmakers seek to compete with domestic carmakers in entry-level vehicle segments.

• Excess inventory and lack of demand is putting pressure on pricing, therefore forcing carmakers to find every possible cost efficiency such as relocating production to more remote regions of the country, which would also allow to tap demand from emergingSAMPLE cities. • Investment pattern follows proximity to tier three and tier five cities in the west of the country or in proximity to larger municipalities areas. Changsha and Chengdu have recorded a six-fold increase in capacity between 2011 and 2015, also thanks to aggressive incentives being offered to OEMs localizing production there.

• Chinese carmakers export operations are being challenged by the lack of demand in key export destinations in Brazil and Russia as well as issues faced in established markets due to recall campaigns and consumer quality concerns (e.g. Australia). Localization of production outside of China to serve foreign markets remains at a larval stage.

2011. It will be interesting to monitor whether domestic 2015 and 2018. Despite these positive affirmations of OEMs will pay more attention in the future to capacity OEMs’ commitment to the Chinese market, over-capacity utilization, since history shows many of them have not remains the increasingly dark cloud looming over the learned the lesson. As a result of these low utilisation rates industry. With the growing awareness of this issue in the following the end of the government incentives schemes, industry and production growth rates slowing down in increases in capacity slowed for domestic OEMs, but 2015, IHS expects that capacity utilisation will begin to picked up again in 2014 and 2015 with the completion of a stabilise at around 65% in the medium term. number of investment projects. It is widely expected that domestic OEMs will adopt a more cautious stance on new investment projects, with their capacity increasing by just Production Outlook 9% between 2015 and 2018. Looking ahead to 2020, the picture is largely positive The negative financial effects of over-capacity for the for light vehicle production as shown above in Figure 1. domestic OEMs, while not to be sniffed at, are somewhat Demand is still expected to grow though nowhere near eased by the active role the state plays in their business what was recorded in previous years, leading production to through the form of subsidies from the government at all the 30 million unit mark in 2020. Government subsidies levels. These subsidies, which can be estimated in over and foreign investment in new plants from OEMs which CNY5 billion being directly handed out to carmakers, try to maximize their footprint in new provinces are the come in many forms, ranging from special rebates on main drivers supporting the substantial gap between locally made cars, low interest loans and cash to support installed capacity and production. In terms of foreign local facilities. For example the city of Chongqing offers OEM investments, it is likely that some carmakers with an incentive of CNY3,000 to buyers of Changan vehicles, a more established presence in the country will seek to which has its headquarters in Chongqing. Changchun optimize their production network by combining plants or local authorities offer up to CNY7,000 incentive for FAW- venturing in new provinces to tap demand in tier three to branded vehicles, whose manufacturer calls Changchun its tier five cities. OEMs operating in China will be required home. to find efficiencies that they have once overlooked as pricing deterioration kicks in. GM expected a 3% price These subsidies are available to both state and privately deterioration for 2015, however it realized that in reality owned enterprises for the purposes of R&D or the building it would face retail price declines much steeper. GM’s of new facilities, with private enterprises seemingly CFO revealed that the carmaker loses 100 million from its benefiting the most from this scheme. As an example, bottom line for each percentage point of price reduction, half of Geely’s income from 2010 through 2011 was from unless cost containment measures are deployed. All of government subsidies; other companies registered as much this reinforces that the production network will need 20% of their income from the government subsidies. The to be optimized over time and possibly moved close to long-term viability of this strategy remains to be seen, as the new demand hubs. Such foreign OEM plants will be OEMs that are clearly struggling with over-capacity open the best candidates to feature production of entry-level new facilities funded by these government subsidies, segments vehicles of the Chinese market, a part of the potentially further exacerbating the negative financial market initially left to domestic OEMs, but where they are impact of over-capacity on the enterprise in the future. increasingly competitive, as shown by GM’s moderately successful Baojun brand. More plants in China will need The capacity utilisation levels of the international OEMs to accommodate more body styles than in the past as well in China have generally been very much higher than as a bigger variety of vehicles, which will confirm China’s their domestic counterparts’ whilst still contributing maturity as an automotive production hub. a significant proportion of SAMPLEChina’s growth in capacity. Foreign OEMs are monitoring their capacity in the country Imports represented about 5% of the sales in 2015, mostly much more closely, however a substantial 22% increase of linked to well-established sourcing patterns and Europe capacity is expected between 2015 and 2018, with about accounting for 2.1%, with European premium OEMs still 3.5 million units being added by joint-ventures formed by shipping large luxury sedans and SUVs to China. Imports foreign carmakers with local ones. Demonstrating their from Japan, mostly Infiniti and Lexus, should be localized confidence in the Chinese market, an extra 2.2 million in the future, which will boost the localization rate in units of capacity are expected to have been added by 2018 the future to some 96%. There is certainly a push for as a result of investments made by Volkswagen, GM and carmakers to localize as much production as possible. A Renault/Nissan combined, accounting for about two-thirds large driver behind the localisation of production is a wish of the total incremental capacity being deployed between to avoid the hefty import duties that come with importing

premium cars to China. On top of a 25% import tariff, the cluster had the largest production capacity of nine million Chinese government also charges a 17% VAT as well as units, which is nearly twice the capacity of each of the a consumption tax based on engine size, which hits the South, Central and Western clusters. Now, new areas of premium market hard. As competition in this segment gets demand are opening up across the country due to improved tougher, carmakers will be seeking to manufacture more of standards of living and higher levels of disposable income, their premium offerings domestically, however that might and carmakers are seeking to maximise their exposure not be across the board. European imports are expected to these new markets by expanding their operations into to continue unabated as these imports are typically these new territories. OEMs need a presence in some of associated with foreign high quality manufacturing that these emerging areas also for operational efficiency, since Chinese consumers prefer in certain vehicle segments. shipping cars from coastal plants comes with significant challenges, both operationally and financially, due to poor

Table 2: Top 24 Light Vehicles Manufactured in China with Forecast (2016–2019) Production Production Design Parent Manufacturer Platform Production 2016 2017 2018 2019 Brand Nameplate Plant

Source: IHS Automotive SAMPLE Evolving geography of Chinese car infrastructure as well as regulatory inefficiencies. Despite production the massive infrastructure investment in recent years, logistic costs represent some 18% of China’s GDP, more The map of Chinese car production is seeing a tide of than double those in Europe and the United States. Moving change whereby the traditional five clusters of production production closer to areas where demand is expected as tier – North, comprising Changchun, Beijing and Tianjin; three and tier five cities reach a more mature motorization South, comprising Guangzhou and Fuzhou; Shanghai; profile. By doing so OEMs are also limiting costs by moving Central, comprising Wuhan and Changsha; and Western, away from the increasing wages of the coastal region. comprising Chongqing, Chengdu and Xian – are becoming less of a focus for manufacturing. Back in 2013 the North