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Economic Observer Zhou Xin/Text A report recently released by German consulting firm Falkensteg shows that in the first half of 2024, 20 German auto parts suppliers with annual revenue of more than 10 million euros filed for bankruptcy, a surge of more than 60% year-on-year. Falkensteg pointed out that the bankruptcy wave was mainly affected by factors such as post-epidemic inflation, rising energy and material prices, and weakening consumer demand. The bankruptcy of these companies also reflects the plight of the German economy and the huge challenges faced by the German automotive industry in its transition to electrification.

The experience of German auto parts suppliers is a microcosm of the difficulties faced by global auto parts companies. Judging from the performance in the first half of 2024, due to the slowdown in the growth of global electric vehicles, the decline in revenue and profits has become the main theme of international auto parts giants. Among them, the revenue and profits of power battery companies have fallen sharply. Thanks to the rapid development of automotive intelligence, companies or related departments of companies whose main business is automotive electronics and smart auto parts have achieved performance growth.

In order to cope with the risks brought about by the slow transition to electrification, global auto parts giants have launched multiple measures such as layoffs, suspension of planned projects, cutting and controlling costs, adjusting business and organizational structures, and many companies have also lowered their performance expectations.

Power battery business has declined severely

Market research firm RhoMotion recently stated that in June this year, global sales of pure electric vehicles and plug-in hybrid vehicles reached 1.4 million, a year-on-year increase of 13%.

However, this was mainly driven by the sales growth of Chinese electric vehicle companies, especially BYD, which sold 860,000 vehicles in the Chinese market, a year-on-year increase of 25%. RhoMotion believes that the electric vehicle industry will not see significant growth in 2024 and has lowered its forecast for electric vehicle sales this year by 5% to 16.6 million vehicles.

Battery companies have been hit hardest by the slowdown in the growth of electric vehicles. CATL, a global power battery giant, had revenue of 166.767 billion yuan in the first half of this year, down 11.88% year-on-year, and a net profit of 22.865 billion yuan, up 10.37% year-on-year. In the first two quarters of this year, CATL's revenue did not exceed 100 billion yuan, and both experienced a double-digit year-on-year decline.

CATL's rival LG Energy Solution was also hit. The company's first-half revenue was 616.19 trillion won (about 322.3 billion yuan), down 29.8% year-on-year. Operating profit was 195.3 billion won (about 1.021 billion yuan), up 24.2% from the previous month and down 57.6% from the previous year, with an operating profit margin of 3.2%. In addition, Samsung SDI's second-quarter operating profit and net profit both fell 38% year-on-year.

In addition to the battery business, the electric drive business of parts companies has also been affected. Valeo's sales in the first half of the year were 11.11 billion euros (about 86.9 billion yuan), a slight decrease of 1% year-on-year, but its high-voltage electric drive business sales plummeted by 40% year-on-year, a decrease of 330 million euros (about 2.58 billion yuan). ZF said it would adjust the production capacity of its electric drive technology division.

The slowdown in electric vehicle growth has also led to weak demand for battery materials. Umicore, headquartered in Belgium and mainly producing nickel, manganese and cobalt battery materials, had revenue of 1.8 billion euros (about 14 billion yuan) in the first half of this year, and its adjusted core profit fell 24% to 393 million euros, lower than analysts' general expectations. Among them, the profit of the battery materials department fell 99% to 1 million euros.

Automotive electronics business grew, semiconductor business declined

The first half of new energy vehicles is electrification, and the second half is intelligence, which is the consensus of the global automotive industry. Benefiting from this, Joyson Electronics, headquartered in Ningbo, China and one of the top 100 global auto parts companies, achieved a net profit of 640 million yuan in the first half of the year, a significant increase of 61.47% year-on-year; operating profit increased to 1.139 billion yuan, a year-on-year increase of 60.94%.

Joyson Electronics' automotive safety business has achieved sequential growth for several consecutive quarters, with all four major business regions achieving significant performance growth and profitability. The gross profit margin of the automotive safety business increased by 3.6% year-on-year to 14.3%. The gross profit margin of the automotive electronics business was approximately 19.3%, which continued to remain relatively stable.

Top Group, also headquartered in Ningbo, had revenue of more than 12 billion yuan and net profit of more than 1.4 billion yuan in the first half of the year, both of which grew by more than 30% year-on-year. In recent years, Top Group has continued to promote the Tier 0.5 supplier model, proactively laid out the electrification and intelligent parts track, and continued to expand its product line, becoming a platform-based parts company. Huaan Securities' recent research report stated that the value of Top's single-bike accessories is about 30,000 yuan.

In contrast, the performance of the semiconductor industry was not satisfactory. STMicroelectronics' second-quarter revenue was $3.23 billion, down 25.3% year-on-year; gross profit was $1.3 billion, down 38.9% year-on-year; profit margin was 40.1%; operating profit was $375 million, down 67.3% year-on-year. After the results were released, its intraday stock price experienced the largest drop in four years.

In addition, Dutch chip supplier NXP Semiconductors' second-quarter revenue was $3.13 billion, down 5% year-on-year, and sales of its automotive chip division fell 7% year-on-year to $1.728 billion, down 4% from the previous quarter. Texas Instruments' total revenue in the second quarter fell 16% year-on-year to $3.82 billion, and its total revenue has shrunk for seven consecutive quarters on a year-on-year basis. MobileyeGlobal's second-quarter revenue fell 3% year-on-year to $439 million, and its adjusted operating profit and net profit both fell 44%.

Industry analysts believe that the key drivers of the growth of the automotive chip market are electric vehicles (EV) and in-vehicle intelligent assistance systems. However, these two major markets are now experiencing slowing growth or overcapacity.

Orders were delayed and performance expectations were lowered

The growth rate of electric vehicles is lower than expected, forcing vehicle manufacturers and parts manufacturers to adjust their development pace.

GM recently said it would postpone production of its second U.S. electric truck plant and Buick brand vehicles, while the transformation of its Michigan electric truck plant was delayed by half a year. In early July, Volkswagen Group announced that it would close a Belgian plant that produced the electric Audi Q8e-tron. In February, Mercedes-Benz announced that it would postpone its electrification goals by five years to 2030.

Consulting firm Falkensteg said the second half of the year will be a critical period for monitoring the bankruptcy rate of German parts suppliers as OEMs continue to cancel and postpone orders.

French auto parts supplier OPmobili－tySE said that due to weak demand for electric vehicles, automakers have a serious overcapacity of electric vehicle production capacity, and many automakers have returned to fuel vehicle development plans. The current electric vehicle production of automakers in the United States, Germany and France is 40% to 45% lower than originally expected.

Due to the downward revision of automobile production expectations, weak foreign exchange and slowing sales growth of electrified products, BorgWarner adjusted its full-year outlook and abandoned its comprehensive electrification strategy. Although BorgWarner's net profit in the second quarter of this year was US$315 million, a year-on-year increase of 38.2%, its net sales were US$3.603 billion, a year-on-year decrease of 2%.

Other companies that lowered their expectations include STMicroelectronics, NXP Semiconductors, Mobileye, LG Energy Solution, Panasonic, Autoliv, Freya, Valeo, and other companies in various automotive parts segments. "The lowered expectations are mainly due to the fact that the global automotive industry had previously overestimated the speed of electrification transformation. In response to the arrival of electrification, both car companies and parts companies were too aggressive in terms of production capacity layout and organizational structure," a relevant person in charge of a world-leading international parts company told the Economic Observer, "but with weak demand in Europe and the United States, the growth rate of electric vehicles is seriously lower than expected."

Layoffs, production cuts and business adjustments

International auto parts companies that are aware of the risks have taken corresponding measures. The first is layoffs. Since last year, Autoliv has been cutting costs, not only cutting thousands of jobs but also closing European factories.

German auto parts giant ZF recently announced that it expects to gradually reduce its German workforce from the current 54,000 to 11,000-14,000 by the end of 2028. In addition, ZF plans to carry out necessary factory integration in Germany and adjust production capacity based on the expected continued weak market demand.

Bosch Group said at the end of last year that it would lay off at least 1,500 employees at its two transmission factories in Germany, and planned to lay off about 1,200 employees in the software and electronics departments by the end of 2026. In February this year, Continental officially launched a layoff plan of 7,150 people, which is scheduled to be completed by the end of 2025.

Dr. Holger Engelmann, Chairman of the Board of Directors of Webasto Group, said that the company's first-half profitability was related to the financial improvement plan project launched in early 2024. "In terms of personnel organizational structure, so far, we have achieved necessary layoffs through natural employee turnover, while also limiting the recruitment of new employees."

The second is to reduce production capacity. LG Energy Solution adjusted its overall production capacity planning in the second quarter, reducing the expected production capacity that meets the IRA (Inflation Reduction Act, the Inflation Reduction Act issued by the U.S. Treasury Department) tax credit conditions from 45-50GWh to 30-35GWh this year. Valeo hopes to sell its two auto parts factories and a research and development center in France to Chinese companies.

Business and organizational structure adjustments have also become the response measures of the auto parts giant. Samsung SDI expects that automotive battery sales will remain weak, so it will diversify its product lineup. In addition to high-end lithium-ion batteries, Samsung SDI is accelerating the development of lithium iron phosphate batteries and higher-end solid-state batteries, and plans to achieve mass production in 2026 and 2027, respectively.

Hyundai Mobis said that as the global electric vehicle industry continues to struggle with weak demand, in order to streamline the business structure, the company has reorganized its existing five divisions of electrification, modules, chassis safety, automotive electronics and service parts into two divisions of electrification and modules.

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Zhou Xin, reporter of Economic Observer

Industry Reporting Department Reporter
Focus on the development of the automobile industry, pay more attention to new energy, energy storage and power batteries, and are good at in-depth reporting and industry analysis.
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