Auto parts companies fully recover in the second quarter
In response to the automotive industry's recovery, auto parts companies have outperformed the broader market this year. According to data from the China Securities Journal, over 80% of listed auto parts companies have seen their stock prices double since the start of the year, with nearly 90% outperforming the overall market. This surge in performance has been supported by a strong rebound in the second quarter, despite initial declines in some companies' first-half results.
Recent semi-annual reports show that although many auto parts firms reported year-on-year declines in the first half, the rate of decline has significantly slowed compared to the first quarter. This suggests that the sector is on a solid upward trajectory, and the improved performance in the second quarter indicates a promising outlook for the remainder of the year.
The growth in the auto parts sector is closely tied to the booming domestic car sales. However, some analysts are concerned that the rapid expansion of the Chinese auto market could lead to an influx of global production capacity, including components manufacturing, into China. With foreign capital dominating key segments of the auto parts market, local companies must keep pace with the fast-growing domestic demand to remain competitive.
Bacheng’s stock price has doubled this year, reflecting the broader trend of recovery in the automotive supply chain. As a cyclical industry, the auto sector typically rebounds before other sectors, and this pattern was evident in the first half of the year.
According to the China Association of Automobile Manufacturers, domestic vehicle production and sales reached 5.99 million and 6.09 million units respectively in the first half of the year, representing a 15.22% and 17.69% increase year-over-year. This robust growth has driven strong performance across the A-share auto parts sector.
Wind data shows that among the 23 auto parts companies under SWS Group, 17 saw their share prices more than double, accounting for 80% of all listed auto parts companies. Huayu Automobile, previously a bus company, became the top performer, rising from 3.33 yuan to 9.64 yuan—a gain of over 200%. Fuyao Glass and FAW Fuwei also saw significant gains, with increases of 196% and 185%, respectively.
Additionally, 20 out of the 23 auto parts companies outperformed the broader market, indicating a strong overall sentiment toward the sector. While stock prices have surged, the first-half performance of these companies may not fully reflect the same momentum. Of the 11 companies that announced their first-half results, seven reported year-on-year declines or losses, but further analysis shows that profitability improved in the second quarter.
For example, Dongfeng Science and Technology, which had a loss of 25.65 million yuan in the first quarter, reduced its half-year loss to 11 million yuan, indicating a profit of about 14 million yuan in the second quarter. Analyst Lu Lei from Great Wall Securities believes this turnaround aligns with the recovery in car sales, especially in the mid-to-high-end segment, which has driven increased orders for parts suppliers.
The auto parts industry is now entering a healthier growth phase. During economic downturns, parts companies often face pressure from high raw material costs and lower procurement prices from automakers. However, as the automotive sector recovers, demand rises, and raw material prices stabilize, leading to higher production and gross margins.
Experts from the China Association of Automobile Manufacturers note that domestic car sales have steadily increased due to government policies promoting consumption. Some models are even sold out, and manufacturers are operating at full capacity. Joint-venture companies producing popular small-displacement vehicles have high utilization rates, benefiting related parts suppliers.
Moreover, stable vehicle prices and lower raw material costs have contributed to improved gross margins. According to the National Development and Reform Commission, domestic car prices remained steady, with a slight increase of 0.9% by the end of June. This stability helps maintain the pricing of spare parts. Additionally, raw material prices, such as steel and aluminum, have dropped significantly, further supporting profitability.
Auto parts like glass and tires have also benefited from falling chemical prices. For instance, Fuyao Glass expects a 20–30% drop in the cost of heavy oil and soda purchases, leading to an increase in gross margin from 31.32% to 33.92% in the first quarter. As production capacity utilization rises, the gross margin is expected to continue improving.
While the auto parts sector is experiencing a boom, challenges remain. The dominance of foreign capital in key markets and technology areas poses a threat to domestic companies. Only 20–25% of the market is controlled by domestic firms, and critical components like engine management systems and ABS are almost entirely dominated by foreign players.
To stay competitive, domestic companies must focus on R&D. However, current R&D investment ratios are low—only around 0.6% of sales revenue—compared to 7–10% for multinational firms. Companies like Geely have taken steps to acquire foreign expertise, but sustained R&D investment is essential for long-term success.
As the economy continues to grow, domestic auto parts companies must keep up with global standards to avoid being left behind. Without continuous innovation, the "hollowing out" of the Chinese auto industry could worsen.
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