China’s BYD, which recently passed Tesla in global sales of electric vehicles, is exporting its cars around the world, from Indonesia to Mexico to England. As it and other Chinese EV makers expand, a once-comfortable sector of the automotive world is feeling increasingly on edge: German auto suppliers.
For decades, German suppliers like Schaeffler, Continental, and ZF Friedrichshafen confidently thrived alongside the nation’s automotive powerhouses, including Volkswagen, BMW, and Mercedes-Benz. But the transition to electric vehicles suggests they can no longer rely on their old advantages.
“Who is the winner and who is the loser is changing,” Christian Kames Kames, co-head of investment banking at Lazard for Germany, Austria, and Switzerland, told the Financial Times. He noted the higher margins enjoyed by newer suppliers, many based in Asia, who focus on batteries, software, and semiconductors.
German suppliers—already contending with inflation and rising interest rates amid Germany’s economic downturn—need to invest in EVs while also keeping their market position with traditional cars. That has them “double spending on double platforms—everything is double, except for growth or profit,” said Kames.
Amid these difficulties, Schaeffler launched a bid in October to buy its rival Vitesco Technologies, which became an outlier among big German suppliers by making an early bet on EVs. While few in the industry believed Vitesco’s gamble made sense five years ago, today the company is an attractive takeover target because of it.
Meanwhile China’s rising automakers tend to rely on Chinese suppliers. German suppliers do brisk trade in China, but their main customers are the big German automakers.
Tesla CEO Elon Musk recently praised Chinese automakers and suggested they will emerge as dominant players in the global automotive industry—a sharp departure from when he laughed about the quality of BYD cars in 2011.
China’s EV threat to EU carmakers—and auto suppliers
Last year, an Allianz Trade report stated that China’s EV makers pose a significant threat to European carmakers, particularly the “automotive-dependent economies of Germany, Slovakia and Czech Republic.” It called for higher tariffs on Chinese EVs, estimating that by 2030 they could cost Europe’s carmakers 7 billion euros per year in lost profits.
In the weeks ahead, EU investigators will visit Chinese EV makers BYD, Geely, and SAIC as part of an investigation into whether they have an unfair advantage thanks to government subsidies. Their visits—part of an EU probe announced in September—will help determine whether the EU imposes higher tariffs to protect its carmakers.
But either way, German auto suppliers face a changing world. Pain for Europe’s carmakers likely means pain for its auto suppliers, too.
The expansion of China’s EV makers means growing competition in auto parts, ZF management board member Stephan von Schuckmann recently told the German publication WirtschaftsWoche. He said ZF’s goal is to generate around 30% of its total revenue in China by 2030, up from about 18% last year.
“It can be assumed that today’s competition from China will also spread to Europe,” he said. “You have to take this development very seriously and adapt in order to survive.”
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As Tesla-beating BYD and other Chinese EV makers rise, German auto suppliers struggle: ‘Who is the winner and who is the loser is changing’ - Fortune
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