What Is Auto Industry Analysis?

The biggest difference between the analysis and judgment of the Chinese automotive industry and the market is that we believe that the Chinese automotive industry should be viewed from the perspective of global industrial division of labor. The next five to ten years will be a crucial period for the Chinese automobile industry to make full use of both domestic and international resources to develop domestic and international markets. The prediction of the industry's development prospects and profit levels derived solely from the fierce competition in the domestic market significantly underestimated the development potential. The global configuration of the industrial chain is a fundamental pattern change in the global automotive industry. "Going to China" has become a trend, and China is expected to acquire more automotive value chain links. The industrial transfer will significantly increase the technological strength and manufacturing capacity of China's automobile and parts industry. Based on the vast domestic market, significant advantages in labor factors, and a relatively complete manufacturing development foundation, China's comparative advantage in the development of the automotive industry has rapidly increased.

Automotive industry analysis

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The biggest difference between the analysis and judgment of the Chinese automotive industry and the market is that we believe that the Chinese automotive industry should be viewed from the perspective of global industrial division of labor. The next five to ten years will be the full use of domestic and international

Since the beginning of the new century, with the entry into the WTO and the high-speed growth of the domestic economy, the demand for automobiles has been maintained at a considerable level. Along with economic growth and international competitiveness, commercial vehicles have grown steadily and the market competition structure has become more reasonable; the combined effect of a substantial drop in passenger car prices and an increase in per capita income has led to rapid demand growth.
In the first half of 2007, the demand for automobile consumption increased by 23.3%, maintaining a relatively high level, and it was also the fourth year in which the growth rate exceeded 20% in the six years after joining the WTO. The penetration rate of Chinese cars, especially cars, is at a very low level. With the continued economic growth and rapid increase in income, the penetration rate of cars will perform well.
From a regional perspective, due to China s significant regional economic development and per capita income gap, car consumption will gradually advance from developed areas such as Beijing and Shanghai to moderately developed and less developed areas. At present, the number of passenger cars per thousand people in the more developed coastal areas is still low compared to Beijing, but the per capita GDP of these provinces has reached or exceeded US $ 2,000, which will enter a period of rapid development of automobiles. The total population of these provinces is close to 300 million, which is much higher than that of Beijing, and their rapid development period should be longer than that of first-class regions.
At the same time, we believe that the macroeconomic environment is stable and improving, and the upgrading of the consumption structure with the important content of improving travel conditions will continue until 2020. The formation of a national highway network, the construction of a new countryside, the improvement of rural road conditions, and the vigorous development of the logistics industry provide conditions for the development of the automotive industry. In 2006, the penetration rate of cars for urban households was only 3%, which is still in its infancy. China's current car ownership rate is much lower than the international average and much lower than that of developed countries during the same stage of development.
The number of private passenger cars in China was 15 million at the end of 2006, and it is conservatively expected to increase to 120 million by 2020. The rapid growth of the domestic market and the expansion of exports, it is estimated that by 2015 or so, China's auto production and sales are expected to reach more than 18 million units, and the market share of independent brands is expected to exceed half. We estimate that the development of the passenger car market will have a relatively rapid growth of at least 20 years, and it is expected to maintain an annual growth rate of about 15-20% in the next 10 years.

The wage level of workers in the Chinese automobile industry is only 1/25 of the average level in developed countries (the United States, Japan, and Europe), which is obviously far greater than the difference in labor productivity. It should be said that the comparative advantages in automobiles will gradually come into play.
The first is that China's factor endowment structure is conducive to the development of the automotive industry. As a large developing country, China's factor endowment structure is significantly different from that of developed countries. This is also the basis for China's continuous deep participation in the global division of labor over the past three decades and the significant benefits of globalization. From the comparison of China's production factors and global production factors, China's labor resources are still abundant. The comparative advantages of labor-intensive industries continue to be deepened, and the status of the "world factory" remains stable. Accepting global manufacturing and service subcontracting will significantly increase its position in the industrial chain division of labor.
As the proportional relationship between labor, capital, and technology has improved significantly, China's competitive industries and value chain links have continued to expand. For technology-intensive, capital-intensive, and labor-intensive high-end manufacturing industries such as automobile manufacturing, China has preliminarily been able to undertake industrial transfers and possibly achieve rapid improvement in competitiveness.
It is worth noting that in the process of marching into capital and technology-intensive industries, it is inevitable to strengthen independent innovation capabilities and enhance the competitiveness of independent brands. We believe that the Chinese automobile industry will walk on two legs in the future: on the one hand, it will participate in industrial division of labor and independent development. On the other hand, at the enterprise level, joint-venture and cooperative companies and independent brand enterprises will co-exist, and both will likely develop well.
Secondly, the reform of industrial policies will promote technological progress and independent innovation. As the automotive industry has many influencing factors, the formulation and changes of related industrial policies will become an important factor affecting the development of the industry. At present, the focus of industrial policy is mainly on the healthy development of the automotive industry and the reduction of negative externalities in the manufacturing and use of automobiles.
From the performance of China's auto product import and export, we can see that the international competitiveness of China's auto industry has improved significantly. From 1991 to 2006, the average annual growth rate of imports was 18%, the average growth rate of exports reached 42%, and the growth rate of vehicle exports exceeded 50%. Since 2005, both the export volume of autos and the export value of auto products have surpassed imports, and China's auto industry has shown a net export trend. In 2006, the trade surplus of the automobile industry expanded rapidly, and the international competitiveness of China's automobile industry improved significantly.
We believe that there are two driving forces behind the rapid export growth. First of all, multinational companies continue to expand their investment and procurement volume in China under the pressure of competition. "Going to China" has become a new trend in the global automotive industry. Secondly, labor cost advantages and the accumulation of industrial technological progress have made China's vehicle exports a new growth point, while independent brands are the absolute main force of vehicle exports. The international competitiveness of Chinese automobile manufacturing will follow in the footsteps of the textile and home appliance industries. The "Made in China" of automotive products will change the future international market structure.

We are convinced that the long-term rapid growth prospects of the Chinese automobile market and the improvement of the global competitiveness of the Chinese automobile industry will profoundly change the pattern of the international automobile industry. As shown by the development of Japan and South Korea, in the next 5-10 years, there will be several Chinese Car companies rank among the world's mainstream car companies.
According to our forecast, the growth rate of car sales in 2007 is expected to be about 25%, and the price will drop by about 5%. Under such circumstances, the profitability of the car industry in 2007 will increase by about 35% compared with 2006 The growth rate of the overall automotive industry's profit level will exceed 30%, and some companies with an increasing market position are expected to significantly exceed the market growth rate.
Based on the fast-growing Chinese domestic market and the increasing global competitiveness of the industry, the future development of the automotive industry can be viewed with optimism. It is expected that the superior automobile companies will maintain an average annual growth of 30% in the next 5-10 years. We believe that the industry valuation level is expected to gradually increase to 30 times the 2008 P / E ratio. Investing in companies whose market position continues to improve and the value of the industry chain continues to expand is an offensive and defensive strategy.
We believe that the volatility of the automotive industry tends to decline, manufacturers' expectations are expected to stabilize, market prices tend to decline steadily, market competition is moving towards competition covering the comprehensive strength of brands, quality, and services, and manufacturers that rely solely on price competition tend to decline. The current market profit margins are significantly different. Most of the companies that can obtain high profit margins are a manifestation of their comprehensive strength, while small profit or loss-making companies have insufficient ability to cut prices.
Despite the increase in the price of raw materials, the quality and rapid growth of the domestic component supporting system have increased, effectively reducing the cost of vehicle products. The profitability of the industry has steadily improved. The rapid growth of the domestic market and the structural changes in the competitive landscape have caused price competition to retreat to a secondary position, and the profitability of the automotive industry has risen steadily. Strategy, execution and control of the value chain have become the key to the future development and investment value of automotive companies.