Automotive Engineering - May 2024 - 3

SUPPLIER EYE
We've been here before
F
or a couple of decades, virtually every
global original equipment manufacturer
spent significant capital and attention
raising their sales/production profile in
China. It became the world's largest light vehicle
market by 2010 and has not looked back.
Forming new joint ventures to expand their
portfolios through the extension of global offerings,
several OEMs even took the opportunity to
design China-specific variants. Western OEMs
followed these JVs, and scores of European,
North American, Japanese and Korean Tier 1 and
2 suppliers followed their OEMs, creating a local
supply of global components as China became
an integral cog in the machine.
A presence in China is core to success for
many industry players. China produced about 28
million light vehicles in 2023, based on S&P
Global Mobility's estimates. China is not only key
for Western OEM profitability, from a volume
perspective it is the largest single market (about
31% of the world in 2023) with the highest
growth profile. It also resides between Europe
and the U.S. from a content and vehicle segment
profile. Additionally, global unibody platforms
from virtually every global OEM count on China
for significant contributions. As recently as 2019,
non-Chinese OEMs accounted for 13 million units
(53%) of China's light-vehicle output.
Why the history lesson? While this enviable
position was key for Western OEMs and their suppliers,
a number of factors have and continue to
buffet their position in China. These include extraneous
events such as COVID-19, chip supply
shortages and port delays. More important has
been China's regulatory drive toward new-energy
vehicles (NEVs) and the improving technical and
scale economic profile of Chinese OEMs.
Companies such as BYD, Geely, SAIC and others
have moved up the past few years and are positioned
for more. Their success is apparent. In
2023, Western OEM share dropped to about 40%
of China's volume. At this rate, Western OEMs are
losing share at a rate of over 900,000 units per
year - equal to the loss of three-and-a-half
250,000-unit assembly plants per year. A startling
decline. Despite continued market growth,
Western OEMs can no longer count on China as
an automatic contributor to their global scale.
Michael Robinet
Executive Director,
Consulting,
S&P Global Mobility
SAE Foundation
Trustee
michael.robinet
@spglobal.com
In China,
Western OEMs
are losing
share at a rate
of more than
900,000 units
per year.
Growth in China, by China
There are other impacts of this decline to heed.
As Chinese OEMs raise their profile domestically,
they start to look toward export markets to diversify
demand. Exports have risen from China
to South America, various Southeast Asian locations,
Mexico and scores of markets in Central
America. As export volumes bolster domestic
positions, scale economies and designs for multiple
markets improve. Already, several Chinese
OEMs are eying plants in Europe or Mexico to
better serve these new markets from the inside.
Western OEMs must adjust their perspective.
For instance, China accounted for over 16% of
Ford's global production volume in 2016. In
2023, this slipped to 8%. Mazda's production
volume in China declined from 17% in 2016 to 6%
in 2023. Virtually every OEM is grappling with
pressure on their China-based volume. This places
even greater dependency on success in home
markets of North America, Europe and Japan/
South Korea. Similarly, their suppliers must
adapt to the new reality of lower volume in
China and stronger China-based competitors.
Turning this tide will be difficult. Many are
seeking to slow the growth of China OEMs and
suppliers in core export markets in North
America and Europe through trade restrictions.
Make no mistake, the problem is extremely complex,
although history is a wonderful teacher.
Any trade-based measures can distort competition
and possibly raise prices for consumers.
Over the long term, increased competition will
result no matter what barriers are erected.
Chinese industry players have faster cadence,
are nimble and are breaking many industry
norms. This is the new reality. Western industry
players will need to adapt as they have before.
AUTOMOTIVE ENGINEERING
May 2024 3
Automotive Engineering - May 2024

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