German auto suppliers struggle as Chinese EV makers rise

German auto suppliers are facing challenges as Chinese electric vehicle (EV) makers, including BYD, rise in popularity and global sales. These Chinese companies, such as BYD, are exporting EVs worldwide, posing a threat to the once-thriving German auto suppliers, who previously enjoyed a comfortable position in the automotive industry. The shift towards EVs has disrupted the traditional advantages of German suppliers, who are now facing competition from newer suppliers, mostly based in Asia, that focus on batteries, software, and semiconductors. Amid Germany’s economic downturn, German suppliers are also contending with inflation and rising interest rates, further intensifying their struggles. In response, some German suppliers, like Schaeffler, are looking to invest in the EV market and acquire rivals with expertise in this area, while also trying to maintain their market position with traditional cars. However, they are facing the challenge of double spending on two different platforms without significant growth or profit. As Chinese automakers rise and rely on their domestic suppliers, German auto suppliers are starting to face a changing world, where adapting is necessary to survive.

Introduction

As Chinese electric vehicle (EV) makers like BYD surpass Tesla in global sales, German auto suppliers are feeling the pressure. For decades, German suppliers thrived alongside the nation’s automotive powerhouses, but the transition to EVs suggests that they can no longer rely on their old advantages. Newer suppliers based in Asia, who focus on batteries, software, and semiconductors, are enjoying higher margins and gaining an advantage. German suppliers must invest in EVs while also protecting their market position with traditional cars.

Chinese EV makers like BYD surpass Tesla in global sales

China’s BYD, a leading EV maker, has recently overtaken Tesla in global sales of electric vehicles. BYD is exporting its cars around the world, expanding its reach from Indonesia to Mexico to England. This significant achievement by Chinese EV makers is causing concern for German auto suppliers. The success of Chinese EV manufacturers highlights the changing dynamics in the global automotive industry.

German auto suppliers feeling the pressure

The rise of Chinese EV makers has put German auto suppliers on edge. Companies like Schaeffler, Continental, and ZF Friedrichshafen, which have traditionally thrived alongside German automakers like Volkswagen, BMW, and Mercedes-Benz, are now facing difficulties. The transition to EVs means that German suppliers can no longer rely on their old advantages. The higher margins enjoyed by newer suppliers, many based in Asia, who focus on batteries, software, and semiconductors, are posing a challenge for German suppliers.

Newer suppliers based in Asia gaining advantage

Newer suppliers based in Asia, especially those focusing on EV components like batteries, software, and semiconductors, are gaining an advantage over their German counterparts. These companies are capitalizing on the growing demand for EVs and are enjoying higher margins. As Chinese EV makers like BYD expand their market presence, they tend to rely on Chinese suppliers, further marginalizing German auto suppliers. This shift in the market dynamics has put German suppliers in a difficult position.

German suppliers need to invest in EVs while protecting market position

German auto suppliers are faced with the challenge of investing in EV technology while also protecting their market position with traditional cars. With the decline in demand for traditional combustion engines and the growing popularity of EVs, German suppliers must adapt to the changing landscape. They need to invest in EV-related research, development, and production capabilities to stay relevant in the market. At the same time, they must ensure that they continue to meet the demands of their customers in the traditional automotive sector.

Schaeffler launches bid to buy rival Vitesco Technologies

In an attempt to navigate the changing automotive landscape, German auto supplier Schaeffler has launched a bid to buy its rival Vitesco Technologies. Vitesco Technologies made an early bet on EVs, which has proven to be a wise move in hindsight. While few in the industry believed in Vitesco’s strategy a few years ago, the company’s focus on EV components now makes it an attractive takeover target. This move by Schaeffler demonstrates the need for German suppliers to adapt and invest in EV technology to remain competitive in the market.

Chinese automakers rely on Chinese suppliers

Chinese automakers, including leading EV maker BYD, tend to rely on Chinese suppliers for their components. While German auto suppliers do conduct business in China, their main customers are the big German automakers. This reliance on Chinese suppliers by Chinese automakers further solidifies the advantage of Asian suppliers in the EV market. German auto suppliers must find a way to balance their existing partnerships with German automakers while also catering to the growing demand from Chinese automakers.

Tesla CEO praises Chinese automakers

Tesla CEO Elon Musk, who is often seen as a rival to Chinese EV makers, has praised Chinese automakers and suggested that they will emerge as dominant players in the global automotive industry. This is a significant departure from his previous remarks about the quality of Chinese cars. Musk’s acknowledgment of the rising influence of Chinese automakers highlights the threat they pose not only to Tesla but also to other global carmakers.

China’s EV threat to EU carmakers and auto suppliers

China’s EV makers pose a significant threat to European carmakers, particularly the automotive-dependent economies of Germany, Slovakia, and the Czech Republic. An Allianz Trade report from last year warned that Chinese EVs could cost Europe’s carmakers 7 billion euros per year in lost profits by 2030. The expansion of China’s EV makers and their growing market share puts European carmakers and auto suppliers at a serious disadvantage. It is crucial for the EU to address this threat and protect its domestic automotive industry.

EU investigation into Chinese EV makers

To address the potential unfair advantage of Chinese EV makers, the EU has launched an investigation into whether these companies benefit from government subsidies. EU investigators will visit Chinese EV makers, including BYD, Geely, and SAIC, to determine if higher tariffs should be imposed to protect European carmakers. The outcome of this investigation will have a significant impact on the future of the European automotive industry and its auto suppliers.

Pain for Europe’s carmakers means pain for auto suppliers

The challenges faced by Europe’s carmakers due to the rise of Chinese EV makers will also impact auto suppliers. As China’s EV makers gain market share and expand their influence, European auto suppliers will face growing competition, particularly in the EV component sector. German auto suppliers, in particular, will need to adapt and find ways to remain competitive despite the changing dynamics in the market. It is essential for auto suppliers to align their strategies with the evolving needs of the industry.

Growing competition from China’s EV makers

China’s EV makers, led by companies like BYD, are becoming formidable competitors in the global automotive market. Their rapid growth and success in surpassing established players like Tesla have shaken the automotive industry. As Chinese EV makers expand their market presence outside of China, they are increasingly challenging the dominance of traditional automotive powerhouses. This growing competition requires established players to reassess their strategies and invest in new technologies to stay ahead.

ZF’s goal to generate revenue in China by 2030

ZF, a leading German auto supplier, aims to generate around 30% of its total revenue in China by 2030, up from about 18% in the previous year. This goal underscores the importance of the Chinese market for German auto suppliers. As Chinese EV makers continue to expand and gain market share, German suppliers must proactively participate in this growth to remain a competitive force in the industry. The ability to generate significant revenue in China will be crucial for the long-term success of German auto suppliers.

Conclusion

The rise of Chinese EV makers and their success in surpassing established players like Tesla is causing significant challenges for German auto suppliers. These suppliers, who have traditionally thrived alongside German automakers, now face increasing pressure to invest in EV technology while protecting their market position with traditional cars. The higher margins enjoyed by newer suppliers based in Asia adds to the competitive landscape. German suppliers must adapt and find ways to navigate the changing dynamics in the global automotive industry to remain relevant and competitive in the market.