Profits have tripled and parts companies have achieved their worst performance in 70 years.

SMM News: 2020 is destined to be a magical year. Under the pressure of the economic downturn and the impact of the epidemic, the entire auto industry has been hit hard.

According to the semi-annual reports of 10 mainstream multinational parts and components companies, their revenue fell across the board, with an average drop of more than 25%, while 9 enterprises had negative net profits, with an average drop of more than 200%.

In the words of Continental Group CEO Elmar Degenhart at its earnings conference, "there has never been a similar collapse in the auto industry market since the end of World War II."

According to the forecasts of many parts and components companies, it will take at least three years to restore the global production level of 85 million vehicles before the 2019 epidemic. In this process, only by letting go of the past and betting on the "chips" can we be "reborn" in Nirvana. Spare parts companies also released their own "rescue" plans in their financial statements.

Let go of the past: weakening the traditional Internal Combustion engine Business

As performance plummets, "layoffs", "salary cuts" and even "job transfers" are naturally high-frequency words heard in the first half of this year. At a time when cash flow is stretched, after all, parts and components enterprises can not escape this bullet, there is an urgent need to cut costs to "restore blood".

The global workforce has fallen by 5300 since mid-2019, including 3800 since the beginning of 2020. In addition, ZF also faces high debt after the acquisition of Webco and plans to cut 15000 jobs worldwide, half of them in Germany.

The Continental Group had already carried out a "structural transformation plan for 2019-2029" before the outbreak, saving $1.2 billion (8.56 billion yuan) in costs. Over the next decade, Continental is expected to affect as many as 20, 000 jobs worldwide, of which about 15000 will be optimized by the end of 2023.

Facing the pressure of survival, parts companies have learned to let go of the past.

Recently, ZF announced that it would no longer invest in transmissions specially designed for diesel locomotives, while Continental Group announced in 2019 that the traditional fuel business in four production bases around the world would stop production or close factories one after another, and cut down the relevant technical personnel.

Car companies have gradually 'lost interest' in traditional business under stringent environmental policies and changes in consumer demand, and believe that the wave of layoffs faced by parts and components companies is "far from over", according to a research report.

However, these measures can only solve the temporary needs, can not fundamentally solve the hematopoiesis problem, in the case of limited R & D funds, how to carry out business transformation is a problem that every parts company should ponder.

Increase the "chips": betting on the future of electrification

Although the global car market suffered a freezing point in the first half of this year, the development of electric vehicle technology is still hot. Driven by Tesla, global auto companies are accelerating the layout of the electric vehicle market.

According to a survey released by Matthias Schmidt, an independent automobile analyst in Berlin, the cumulative number of new energy vehicles registered in Europe from January to July 2020 has reached 500000 (269000 pure electric vehicles and 231000 plug-in hybrid vehicles). According to this trend, European electric vehicle sales will exceed 1 million in 2020.

From the financial reporting trends of mainstream parts enterprises, it can be learned that orders in the electrification field have gradually become the growth point of enterprise revenue.

For example, Schaeffler's E-Mobility business won two contracts to supply electric drive systems to high-end global manufacturers in the first half of the year, totaling 1.1 billion EUR (9.1 billion yuan).

BergWarner has recently provided high-performance eDM electric drive modules for Ford's leading EV, Atchi U5 and ideal ONE models, and another "three-in-one" electric drive system, iDM, is expected to be put on the market in bulk by the end of 2021. BergWarner predicts that by 2023, 36% of the company's revenue will come from electric and hybrid products.

ZF announced that it will focus on flexible platform technology for plug-in hybrid and pure electric vehicles. In fact, long before the outbreak, ZF began to adjust its organizational structure and production capacity, including combining the existing passenger car transmission technology and electric drive to form a new division (expected to be established on January 1, 2021). Mainly to provide customers with systematic electric drive solutions.

In the future electrified track, Foggia even bet on fuel cell vehicles, and the goal for the second half of 2020 is, as always, to make breakthroughs in fuel cell systems and high-pressure hydrogen storage tank technology.

Although the epidemic has brought setbacks to the automotive industry, long-term trends have made it necessary to continue to invest in electrified technology. It can be seen that the chips of international spare parts enterprises in the field of electrification are increasing rather than decreasing, and the automobile industry is also accelerating to get rid of its dependence on the sale of gasoline-powered cars for more than a century.

Tighten the "chips": autopilot focus on ADAS

After the initial blindness and madness, the self-driving industry is gradually returning to rationality. From the statements of the international mainstream component manufacturers, we can find that they will shift their focus to the L2 driving assistance system (ADAS) market in the second half of 2020, and slow down or delay the commercialization of L3. Foggia made it clear in the financial report: "in the new post-epidemic environment, reducing investment in automated driving is one of the trends in the second half of the year, and enterprises will focus more on L2 and L2 + levels."

Autopilot is a complex system engineering, with high research and development costs and high requirements for hardware and software, especially due to the current imperfect laws and regulations. In the next 5-10 years, more in the industry or promote the popularity of ADAS. Huo Bin, vice president of the self-driving and safety business group of Continental Group and general manager of China, once made the above statement to Auto House.

At present, spare parts companies are facing tremendous financial pressure. L3 is more like a medium-term strategic commanding point. Even if it can be mass produced now, the short-term demand is extremely limited. While the ADAS market is in an explosive growth cycle, whether it can rely on ADAS to make money and support the sustained high R & D investment of L3 autopilot is the key for enterprises to accumulate thick and thin.

Judging from the orders for the first half of the year, ZF has won a series of important orders in the areas of advanced driving assistance systems, related advanced sensors and smart actuators. In terms of investment, with the continuous improvement of ADAS penetration, the number of automotive radars will continue to grow, and so will the demand for radome. Recently, Hella set up a joint venture with China Minshi Group, which mainly produces radome and luminous logo, and plans to start operation in the autumn of 2020.

Most multinational parts companies have tightened their R & D investment, but there are also "retrograde".

Valeo is unique, spending more on research and development, up 18.2% from the same period last year, while net profits belonging to the parent company plummeted 850%. It is reported that so far, more than 60% of Valeo's orders come from innovative products such as auxiliary driving and new energy vehicle powertrains. It can be seen that although the transformation has brought labor pains, Valeo has achieved initial results.

Year-end goal: cannot be assessed, but investment in China remains unchanged

For the future market trend, many parts enterprises have given their own judgment. Foggia predicts that global car production will be nearly 64 million in 2020, down 25% from the same period last year, and is expected to return to the production level of 85 million vehicles before the 2019 epidemic in 2022-2024. In the following third quarter, Continental expects global car production to fall sharply by 10% to 20% from a year earlier.

In the financial results for the first half of 2020, Continental Group, Amboft and other enterprises were unable to give targets for fiscal year 2020. They are of the view that it is still difficult to assess the possible further negative impact of the epidemic on production, supply chains and demand as uncertainties in the duration and severity of the epidemic have brought about variables to the economic environment.

Meanwhile, Sieder, chief executive of ZF, said: "although Europe is showing signs of recovery, Europe is likely to become the most difficult market area in the next few years because of falling car exports and increasingly stringent emission standards."

Zaifu assumes that adjusted EBIT at the end of 2020 is expected to be positive, but net profit is still negative, if the epidemic does not break out on a large scale in the coming months. The market is not expected to return to 2019 levels in the next three years.

"China and Asia are the most promising markets at the moment, and business in the region is recovering strongly." Shieder said. In the second quarter, many parts and components companies achieved counter-trend growth in the Chinese market despite a general decline in revenue in the global market. For example, Ambofo's revenue in the Chinese market grew by 14%, while Valeo's revenue in the Chinese market grew by 5% in the second quarter.

Mainland, Foggia and other parts companies CEO promised in media interviews that China's investment plan will remain unchanged. In May 2020, Foggia announced the establishment of Foguele Automotive Electronics R & D headquarters in Chongqing, with a total investment of 450 million yuan. In June, Continental Group's new electronic air suspension system factory started construction in Changshu and is expected to be officially put into operation in the second quarter of 2021.

Thus it can be seen that the mainstream international parts companies still regard the Chinese automobile market as a key strategic market.

Write at the end:

If the automobile industry is compared to the sea water, the enterprise is the fish, and the fish must perceive the change of the water if they want to survive. In the post-epidemic era, the sea is rough, fast fish eating slow fish is becoming a new law of competition, among which the rise of Tesla is a typical case.

In the face of the crisis, parts and components enterprises for a century should always be full of awe, maintain hunger, thirst and sharpness, the business should be cut off, do not let the past bind themselves, but tighten their belts must never be left behind, so that they will not be slapped to death on the beach by sudden waves.

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