1. Overview of the Global Automotive Industry Development

　　The automotive industry, after a century of development, has become one of the largest and most important industries in the world, serving as a pillar of the national economy in many developed industrial countries such as the United States, Japan, Germany, and France. According to statistics, excluding the years 2008 and 2009 which were affected by the financial crisis, global automobile production has shown steady overall growth in recent more than a decade, increasing from 69.22 million vehicles in 2006 to 99.215 million vehicles in 2018.

　　With the rapid development of economic globalization, the global automotive industry landscape has changed. Traditional automotive powerhouses like the United States, Europe, and Japan have seen stable growth in automobile production and sales, with markets gradually becoming saturated. Labor-intensive and resource-intensive automotive manufacturing activities have gradually shifted to developing countries in Asia, South America, and other regions. Among these, the BRICS countries (Brazil, Russia, India, and China) have shown the most rapid growth in emerging markets, becoming the main driver of sales growth. Developing countries have high economic growth rates and are experiencing an upgrade in their consumption structure. It is foreseeable that the focus of the automotive industry will continue to shift towards developing countries in the future.

　　2. Overview of the Automotive Parts Industry

　　The automotive parts industry is the foundation of the automotive industry's development and a prerequisite for its sustained and steady growth. With the advancement of economic globalization and market integration, the market position of the automotive parts industry within the automotive industry system has gradually improved. At the same time, the original integrated model of vehicle assembly and parts production, with numerous parts companies relying on a single vehicle manufacturer and a geographically localized division of parts production, has changed. International automotive parts suppliers are moving towards independent, large-scale, and global development paths.

　　(1) Development of the Global Automotive Parts Industry

　　The international automotive parts industry is characterized by industrial concentration. Internationally renowned automotive parts companies are mainly concentrated in North America, Europe, and Japan. These companies are large in scale, possess strong technical capabilities, and have ample capital, guiding the development direction of the global parts industry. With the development of the world economy, the scale of automotive parts companies is also growing, and competition is becoming increasingly fierce.

　　Against the backdrop of global economic integration, while major global automakers and parts suppliers focus on their core businesses and expand production scale, they are further reducing the self-manufacturing rate of automotive parts, lowering costs, and adopting a global sourcing strategy. They procure automotive parts products with comparative advantages worldwide, providing a significant development opportunity for developing countries.

　　In the face of increasingly fierce market competition, increasingly stringent environmental regulations, and rapidly advancing high-tech developments, international automotive parts companies are accelerating the pace of industrial transfer to tap into emerging markets and effectively reduce production costs. Countries such as China and India, with abundant labor resources, relatively low labor costs, and continuously improving labor quality, have become major destinations for the global transfer of the automotive parts industry.

　　(2) Development of China's Automotive Parts Industry

　　China's automotive parts industry has developed alongside the vehicle manufacturing industry. Before the 1980s, the automotive parts industry developed relatively slowly. After the 1980s, through continuous technological introduction and transformation by parts companies, separation from vehicle manufacturers, and private enterprises lowering costs, improving production processes, and enhancing product quality, the domestic automotive parts industry has rapidly developed. After joining the WTO, due to the further opening up of the automotive parts market, international automotive parts companies, optimistic about China's rapidly developing automotive market and low-cost advantages, accelerated the process of setting up joint ventures or wholly-owned factories in China. During the "Eleventh Five-Year Plan" period, driven by national industrial policies and the rapid growth of the automotive industry, the technological level and production management level of China's automotive parts companies have greatly improved, forming a large number of powerful parts production enterprises. Some of the faster-developing companies already have strong market competitiveness, and their products have entered the global procurement network of vehicle manufacturers and penetrated mainstream markets such as Europe, America, and Japan.

　　3. Analysis of the Upstream and Downstream Industrial Chain of Automotive Parts

　　The automotive parts industry is in the middle of the automotive industry chain. The upstream industries of the automotive parts industry are raw material industries, including steel, machinery, rubber, petrochemicals, electronics, textiles, etc.; the downstream industries are the vehicle manufacturing industry (automobile assembly, stamping, body welding, body painting) and the after-sales service industry (automobile sales, automobile repair, automobile finance).

　　Automotive Raw Materials—Automotive Parts Manufacturing (Engine Parts, Power Transmission Devices, Suspension Braking Devices, Body Parts, Accessories)/Related Industries (Automotive Electronics (Automotive In-Vehicle and Automotive Control Electronics), Automotive Tires, Automotive Glass, Rubber and Plastic Parts, Automotive Batteries, Motor Vehicle Lighting Fixtures, Automotive Instruments and Meters Manufacturing, Trailers, Semi-trailer Parts)—Vehicle Manufacturing Industry—Service Trade (Automobile Circulation and Sales, After-sales Service and Maintenance)

　　From the position of the automotive parts industry in the industrial chain, it can be seen that the automotive parts market is mainly divided into two categories according to its use: one is the outsourced orders from the automotive vehicle manufacturing industry, referred to as the OEM supporting market (hereinafter referred to as such); the other is the demand for automotive parts used in automobile repair, maintenance, and modification during after-sales service, referred to as the after-sales market (hereinafter referred to as such). Considering the differences in national markets, the downstream consumer market for automotive parts can be summarized as the domestic OEM supporting market, the domestic automotive after-sales service market, and the export market.

　　Under the condition that automotive manufacturing technology and design remain unchanged, the various parts inside the car purchased by consumers must follow a certain fixed proportional relationship. Therefore, the relationship between various parts and corresponding sub-industries in the automotive parts industry mainly shows a complementary relationship.

　　4. Reasons for Changes in Profit Levels of the Automotive Parts Industry

　　(1) Competitive Situation in the Vehicle Market

　　With the increasing competition in the automotive market, the cycle of new models launched by vehicle manufacturers is constantly shortening. In the initial stage of a new model's launch, the average selling price is higher, and the corresponding profit level of the automotive parts industry is also higher. However, as the time since a new model's launch increases and replacement models are launched, price reductions are an inevitable law in the automotive industry. To ensure their profit levels, vehicle manufacturers shift the pressure of price reductions to the first-tier suppliers of the corresponding supporting system, requiring a certain percentage of price reductions for supporting products each year. At the same time, first-tier suppliers will pass on the pressure of price reductions to second-tier suppliers, thus affecting the overall profit level of the automotive parts industry. Excellent enterprises among second-tier suppliers, due to their strong development capabilities, can keep up with the pace of new models launched by vehicle manufacturers, and their profit levels are relatively less affected.

　　(2) Fluctuations in Raw Material Prices and Changes in Labor Costs

　　The main raw materials for producing automotive parts are petrochemical products, including POM, PA, PBT, PP, and other plastic particles, as well as steel and other metal materials. Fluctuations in raw material prices have a significant impact on the production costs of automotive parts companies, thus affecting the overall profit level of the industry.

　　In addition, rising labor costs will affect the industry's profit level. However, since the proportion of labor costs in this industry is generally low, the rise in labor costs will not have a significant adverse impact on the industry's profit level. Enterprises can reduce the adverse impact of rising labor costs by improving the automation level of equipment.

　　(3) Brand and Product Technology Content

　　The product design capabilities, mold development capabilities, and production capabilities of auto parts companies determine their level of participation in the research and development and production activities of Tier 1 suppliers and even vehicle manufacturers. Companies with strong product design, mold development, and production capabilities can participate deeply in the production processes of Tier 1 suppliers and vehicle manufacturers, thus achieving higher profit levels.

　　5. Development Strategy Planning for the Automotive Parts Industry

　　Project Goal of the "Key Component Breakthrough Project Implementation Plan" in the "Eight Key Projects of the Medium- and Long-Term Development Plan for the Automotive Industry":

　　By 2020, several automotive parts groups exceeding 100 billion in scale will be formed, with strong international competitiveness in some key core technologies; by 2025, several automotive parts groups will be among the top ten globally.

　　——Significant breakthroughs in key core technologies. Focus on achieving key breakthroughs in key core technologies in the parts field, consolidating a safe and controllable key parts supporting system. Key areas and breakthrough targets for automotive parts to be tackled.

　　——Comprehensive development of Chinese-brand parts. By 2020, the innovation capabilities of Chinese-brand parts will fully meet the safety, energy efficiency, and environmental protection requirements of vehicle products; a green manufacturing system will be comprehensively promoted, and a quality brand strategy will be implemented in depth; the relative cost advantage will begin to transform into technological and brand advantages, with more than 8 companies entering the top 100 global automotive parts companies. By 2025, some Chinese-brand parts companies will be globally leading in energy-efficient vehicles, new energy vehicles, and intelligent connected vehicles, with 1-2 companies among the top ten in the world's top 100 automotive parts companies, and more than 20 companies among the top 100.

　　More efficient and smooth collaborative development between vehicle and parts companies. By 2020, strategic mutual trust between vehicle and parts companies will continue to strengthen, and a cooperation mechanism for joint R&D, cost sharing, and profit sharing will be basically established. By 2025, strategic cooperation between vehicle and parts companies will be closer, parts companies will take a leading role in technology R&D, quality improvement, and product services, and the mechanism supporting vehicle companies' innovative development will be increasingly improved, with a collaborative development situation basically established.

　　——Effective establishment of cross-industry cooperation mechanisms. By 2020, large-scale adoption of intelligent and digital equipment in R&D, manufacturing, logistics, and services by automotive parts companies; preliminary construction of a cross-industry innovation system integrating the automotive parts industry with new materials, next-generation information technology, internet technology, intelligent transportation, energy, and environmental protection; significant increase in the proportion of automotive parts remanufacturing output in the total output of the after-sales repair market. By 2025

　　——Significantly enhanced international development capabilities. By 2020, joint efforts by vehicle and parts companies to develop overseas markets will become the norm, providing guarantees for the large-scale entry of Chinese-brand vehicles, especially new energy vehicles, into developed country markets; the ability of enterprises to integrate resources will continue to improve, and the ability to use global technology, capital, talent, and market resources to enhance core competitiveness will continue to strengthen. By 2025, backbone parts companies will establish stable overseas bases globally; international production capacity cooperation will continue to deepen, forming a group of Chinese companies and industrial clusters with strong comprehensive international competitiveness, gradually seizing the high-end of the global automotive industry chain.

　　6. Industry Entry Barriers

　　(1) Entry Barriers to the Vehicle Parts Procurement System

　　The international division of labor and cooperation system in the automotive industry has matured, and large-scale vehicle manufacturing companies adopt global procurement and division of labor strategies. All aspects of the entire industrial chain are developing towards business specialization, refined production, global configuration, and streamlined management. The interdependence between vehicle manufacturing companies and parts manufacturing companies has increased, and although procurement is diversified, a fixed range of long-term cooperative enterprises is often formed, and parts suppliers are not easily changed. For external new entrants to break into the vehicle parts procurement system, their product quality, technology level, production scale, and supply chain capabilities need to reach a high level, which makes the entry threshold relatively high.

　　(2) Technological Barriers

　　The automotive parts industry generally has high requirements for R&D technology and production processes, while a few parts with lower technical thresholds also have low added value due to sufficient market competition. In automotive parts, core components such as automotive engines, transmissions, and transmission equipment are controlled by large, mature companies in the market in terms of design and production technology. The R&D of these parts often requires comprehensive knowledge of mechanics, electrical engineering, and materials, and the R&D cycle is long, making independent innovation very difficult. New entrants often need a considerable amount of time to improve product design and production processes and adapt to market demands, which is a major barrier to entry into this market.

　　(3) Qualification Certification Barriers

　　Automotive parts manufacturers need to complete multiple market access certifications, such as CCC certification. In addition, in order to strictly control product quality, automotive manufacturers require third-party quality system certifications from parts suppliers, such as ISO/TS16949, GJB9001A-2001, etc. After that, vehicle manufacturers conduct strict scoring assessments of parts suppliers in five aspects: quality, cost, logistics, R&D, and management, and conduct on-site audits of manufacturing processes. Finally, each type of parts product must undergo strict Advanced Product Quality Planning (APQP) and Production Part Approval Process (PPAP), and pass long-lasting product installation tests. Completing a series of qualifications and assessments requires a lot of time and effort for new market entrants, which is quite difficult.

　　(4) Capital Barriers

　　The automotive parts industry is a capital-intensive industry that requires significant initial investment. Due to the high requirements of downstream vehicle manufacturers and after-sales service companies for product quality and production processes, large capital investment is needed to establish modern production lines. Secondly, downstream market customers prefer to establish cooperative relationships with companies with larger production capacity, so that they can obtain parts products in a timely manner. In order to expand production capacity, parts companies often need to invest a large amount of capital to establish economies of scale. In addition, companies with strong capital strength can form large-scale production, sales, and supply chain systems, and can respond promptly to market technological innovations, changing R&D directions and market strategies. Companies with insufficient capital strength and smaller scales are easily eliminated in the changing market.

　　(5) Brand Barriers

　　Existing large-scale parts manufacturers in the market have already established a strong brand effect, and the price premium of their products often comes from their brand value. Although OEM manufacturers in the OEM market have the strength to try out emerging brands, in the AM market, retail customers are more dependent on brands. Excellent brand products often represent advanced technology, low energy consumption, and wear resistance. For new entrants to establish brand effects, they need to vigorously develop channels in the OEM market and actively promote advertising in the AM market. However, establishing brand effects is a long-term accumulation process, and it is difficult to break through this barrier in the short term.

　　7. Development Trends of the Automotive Parts Industry

　　The globalization of the automotive parts industry is a major future trend. In the 1990s, the automotive parts industry had already begun to form a global production and procurement system, with vehicle manufacturers implementing unified procurement of automotive parts globally according to certain principles. Entering the 21st century, in order to cope with market competition and get closer to vehicle manufacturers, most large automotive parts suppliers in Japan and Europe have undergone industrial transfer and accelerated the speed of industrial transfer. Countries such as China have become the main destinations for attracting the global transfer of the automotive parts industry, and the layout of global automotive parts companies in China has basically been formed. During the same period, China's independent brand automotive parts industry has also been developing rapidly, and the supporting and R&D capabilities of automotive parts manufacturers have further strengthened. China's automotive parts will further expand the international automotive parts supply market by improving the quality management level and cost advantage, and product export sales will continue to increase, and competition between international brands and independent brands will become increasingly fierce.

　　The rapid growth of the Chinese automotive market has made China an important link in the global automotive and parts supply system, and the automotive parts industrial clusters surrounding vehicle manufacturers have also developed rapidly. Automotive parts localization has made significant progress, and currently, the domestic matching rate for commercial vehicles and low- and mid-range passenger vehicles is basically 100% upon production. With the rapid rise of automotive parts industrial bases in recent years in Changchun, Jilin; Shiyan, Hubei; Wuhu, Anhui; Huadu, Guangdong; the Beijing-Tianjin-Hebei Bohai Rim; and Yangzhou, Jiangsu, China has basically formed six major parts industrial clusters in Northeast China, Beijing-Tianjin, Central China, Southwest China, the Yangtze River Delta, and the Pearl River Delta. The clustering of the automotive parts industry allows for finer and more specialized division of labor, easier scale achievement, and significantly improved economic efficiency.

　　Under this background, the automotive parts industry is developing in several major trends: deepening development; increasing the degree of generalization and standardization of parts; improving the electronic and intelligent level of parts; lightweighting of vehicles and parts becoming a future development trend; and clean and environmentally friendly technologies becoming a future industrial competitive high ground. Overall, the Chinese automotive parts industry is showing rapid growth, the strength of some domestic parts companies has greatly improved, and some parts companies with global competitiveness in niche markets have emerged, ushering in a new era for the automotive parts industry.