Becoming the world's number one, how far is China's automotive supply chain from creating its own "Bosch"?

The trend of "involution" in the automotive industry is prevalent, and no car company is immune, including the suppliers in the automotive supply chain. Recently, news that BYD asked suppliers to reduce prices by 10% was circulated on the Internet, sparking heated discussions in the market.

Some suppliers said that "negotiating prices is the norm in the industry."

Some people believe that "the average annual reduction of supply chain companies in the automotive industry is about 5%, and BYD's 10% annual reduction target is higher than the industry level."

Some suppliers even said bluntly, "I have received the notice requiring suppliers to further reduce costs by 10% starting from 2025, but I express my strong dissatisfaction and solemn protest to this."

In response, Li Yunfei, general manager of BYD's brand and public relations department, said in a statement, "Annual price negotiations with suppliers are a common practice in the automotive industry. Based on large-scale purchases, we set price reduction targets for suppliers. This is not a mandatory requirement and everyone can negotiate and move forward."

Although such a response is "official" enough, it still raises concerns about the survival space of China's current parts suppliers.

After all, BYD is now already a leading automaker in the Chinese auto market and has relatively more say when "talking" with parts suppliers, so the weight of "negotiable" may not be as gentle as it sounds.

As some parts suppliers have said, regular price cuts for parts in the supply chain are an industry practice. Since car companies are in a strong position, supply chain companies will basically follow suit.

The current market environment is obvious to all. The entire market is "rolling", and even car companies like BYD still find it difficult to avoid "price wars". In this context, it is understandable that they can further reduce product prices by reducing supply chain costs, or use the funds from cost reduction to improve product competitiveness.

But it is important to consider that in the automotive industry, from the supply chain to the OEMs, everyone is basically in a relationship of mutual benefit. Some suppliers complained to the media: "My profit is only 3% to 5%, and this time I have to reduce the contract amount by 10%. If the negotiation is successful, I still need to give up 5% to 8%."

BYD is now a leading company in the domestic market, and its suppliers are generally also top companies. They should have good strength and ability to withstand pressure. The fact that they are under such great pressure now shows that their survival "elasticity" is very small.

At a time when price wars are raging, supply chain companies are under severe pressure. If a certain profit margin is not left for parts suppliers, it may lead to a series of problems such as quality decline and vicious competition, which will eventually affect car companies and consumers. For example, the Japanese auto industry was forced to falsify prices across the board due to the so-called "annual price cuts."

What’s strange is that, although they are also part of the supply chain, overseas suppliers such as Bosch rarely encounter the situation of being “asked to lower prices”.

In terms of sales and profits, in 2023, although the economic situation and market environment were not so good, Bosch still achieved growth in sales and profits.

In fiscal 2023, Bosch's sales reached 91.6 billion euros, an increase of 3.8%, and 8% after adjusting for exchange rate effects. EBIT was 4.8 billion euros, compared with 3.8 billion euros in fiscal 2022. The EBIT margin was 5.3%, an increase of 1% year-on-year.

In other words, even if its profits in 2024 may decline due to the global economic situation and fluctuations in demand in the automotive industry, it will not affect its global status. In this year's ranking of the world's well-known automotive parts suppliers, Bosch still ranks first.

Many people have also begun to wonder when Chinese auto parts companies will be able to produce a large company with industrial influence like Bosch and gain their own voice in the supply chain and international market.

In fact, as the world's largest automobile manufacturer and consumer, China should have automobile supply chain companies that can stand firm, hold steady and go far.

The key to Bosch's huge scale lies in its leading technology and top competitiveness brought by its strong brand influence. It is not just a supplier dependent on OEMs, but a partner that can provide more added value to automakers.

In the era of intelligence, market competition is becoming increasingly fierce, and higher requirements are being placed on both price and delivery. At this time, Chinese auto parts companies should do a better job of collaboration, reduce costs and increase efficiency through technological innovation, and enhance the competitiveness of both parties, rather than blindly competing on price to a lose-lose situation of "either do it, get out, or die".

At the same time, Chinese auto parts companies should have a bigger picture and actively explore overseas markets. While achieving business growth, they should better cooperate with domestic automakers in going overseas, take advantage of the global supply chain, reduce production costs, and improve procurement reliability.

When a parts company can achieve high quality, low price, high efficiency, and can cooperate with the OEM strategically, its competitiveness will be comprehensively enhanced, the proportion of irreplaceability will increase, and it will naturally have a certain bargaining power.

On the other hand, although reducing costs and increasing efficiency and improving product competitiveness are necessary measures for car companies in the context of competition in the automobile market, from a sustainable perspective, car companies must also give Chinese parts companies a certain living space to ensure the healthy development of supply chain companies.

If we simply ask component suppliers to lower prices without considering the possible adverse consequences of the price reduction, the result is likely to be disadvantageous to both parties.

Take BYD for example. It is a routine operation to ask parts suppliers to reduce prices. A normal price reduction allows suppliers to fully compete on the basis of ensuring reasonable company operations, which is a relatively healthy state. However, when the price reduction is much higher than the normal level of the industry, the supplier's technology research and development, labor and other costs are ignored. Even if the cooperation can be barely maintained, it is a fantasy to grow in cooperation when "food and clothing" are already very difficult.

The rise of Chinese automobiles has a far-reaching impact. China's leading automakers should focus on the overall development of the long term, promote the healthy development of the supply chain, and build a fair and sustainable cooperation environment. Chinese parts suppliers have a long way to go if they want to grow into a large-scale enterprise like Bosch. On this road, they not only need to "hold on" themselves, but also need the support of leading enterprises to "go far".