(Report Producer/Analyst: Guotai Junan Securities, Wu Xiaofei, Zhao Pingping)
1. Core logic and summary
With the increase in industry penetration, the company's BBW shipments will continue to grow rapidly.
Due to the requirements of safety and stability, it is very difficult to replace brake products in China, and the lack of cores in the third quarter of 2021 provides a good opportunity for the company.
Considering cost, technology and other reasons, we expect that the future duopoly pattern of BBW is clear.
With the rapid growth of domestic mid-to-high-end electric vehicle sales and the increase in the penetration rate of L2 and higher level autonomous driving, the company's brake-by-wire is expected to maintain rapid growth.
With the continuous expansion of customers and products, and the optimization of the competitive landscape, the company is expected to become one of the companies with the most certain degree of overseas business cash.
The company's overseas customers have gradually expanded from North American car companies such as GM and Ford to European car companies such as Stellantis, and the sales base of several major customers is close to the level of the domestic passenger car market. At first, overseas products mainly consisted of lightweight parts such as cast aluminum steering knuckles, control arms, and subframes, among which the steering knuckle business accounted for the largest proportion.
From 2022 to 2023, the company's EPB calipers and brake-by-wire have successively achieved order breakthroughs, and the overseas product categories continue to expand. At the same time, in the North American market, some lightweight and caliper suppliers are gradually withdrawing from the market due to their own poor management, providing a broader market space for the company.
In terms of supporting capacity, the first phase of the company's plant in Mexico has been put into operation, and the second phase of the plant is expected to be put into operation by the end of 2024. With the continuous expansion of production capacity, the company's overseas business will usher in explosive growth, bringing important increments to the company.
Key assumptions:
1. Rapid growth of operating income: It is estimated that the company's operating income in 2023/24/25 will be 76.79/99.73/13.403 billion yuan respectively, with a growth rate of 39%/30%/34% respectively, and the main increment is intelligent electronic control and lightweight braking business. Among them, the intelligent electronic control mainly benefits from the rapid growth of brake-by-wire, and it is estimated that the sales volume of the company's brake-by-wire will reach 75/120/2 million sets on 24/25/2023, and the increase in lightweight braking business mainly comes from the release of production capacity in Mexico (see Part 4 of this report for details).
2. Gradual improvement of gross profit margin: It is estimated that the company's gross profit margin in 2023/24/25 will be 21.3%/22.3%/23.0% respectively, mainly due to the increase in the gross profit margin of brake-by-wire and the increasing proportion of overseas business with high gross profit margin.
We selected Desay SV and Keboda as comparable companies. Desay SV and Keboda are the core companies of the decision-making layer of intelligent driving, and the company is the core company of the executive layer of intelligent driving.
The company and comparable companies also benefit from the trend of automotive intelligence, and related categories are in the stage of rapid increase in penetration, and the domestic market share of products has certain advantages.
PE valuation method: We forecast the company's EPS from 2023 to 2025 to be 2.09, 2.88, and 4.05 yuan respectively, and refer to the 33.8 times PE given to the company in 2024 with reference to comparable companies, corresponding to a reasonable valuation of 97.40 yuan.
PB valuation method: We predict that the company's net assets per share from 2023 to 2025 will be 11.41, 13.95, and 17.53 yuan respectively, and the company will be given 8.1 times PB in 2024 with reference to the industry average, corresponding to a reasonable valuation of 112.97 yuan. Based on the principle of prudence, we give the company a target price of $97.40.
2. BBW is expected to be a duopoly, and the company's shipments will continue to grow at a high rate
2.1. One-Box penetration rate is climbing rapidly, and new energy vehicles are the main driving force
Since 2022, the penetration rate of One-Box passenger cars has increased significantly, and it has entered a period of accelerated climbing.
According to the data of Zosi Automotive Research Institute, the penetration rate of One-Box in 2021 was only about 1.76%, and it was even lower in 2020, during which the penetration rate of One-Box was extremely low and the ramp-up was slow, and after 2022, it ushered in a rapid ramp-up period.
According to our estimates, the One-Box penetration rate in 2022 was 14.98% in terms of retail sales, a significant increase from 2021.
In 2023, the one-box penetration rate is still climbing rapidly, and the one-box penetration rate increased to 26.30% from January to November.
New energy vehicles are the main carriers, and the installation rate of one-box vehicles is significantly higher than that of gasoline vehicles.
Due to the lack of a vacuum source for electric vehicles and the fact that brake-by-wire can improve energy recovery efficiency, the driving factor for new energy vehicles to be equipped with One-Box is stronger. According to our estimates, in 2022, the one-box installation rate of new energy vehicles and 7.65% of one-box vehicles will be installed in 2022.
Since 2023, the deployment rate of new energy vehicles has continued to increase rapidly, while the installation rate of fuel vehicles has increased to a lesser extent: according to retail sales, the installation rate of one-box new energy vehicles increased to 54.17% from January to November 2023, and the installation rate of fuel vehicles increased to 11.22%.
In terms of specific models, as of December 2023, about 166 new energy vehicles and about 66 fuel vehicles are equipped with One-Box.
1) New energy vehicles: Mainstream new energy brands are basically equipped with One-Box products, among which all BYD models use One-Box, mainly Bosch IPB and Fodi Power BSC. Other NEV companies are also speeding up the launch of One-Box, such as Xpeng using the Bosch IPB solution, NIO using the Bosch IPB and Mando IDB solutions, ideally using the Bethel WCBS solution and Bosch IPB solution, and Wenjie mainly using the Bethel WCBS solution.
2) Fuel vehicles: Cadillac, Ford, Buick, Chevrolet and other joint venture brands are more aggressive than other fuel vehicles, and most of them have already launched models equipped with One-Box in 2021, such as Cadillac XT4/5/6, CT4/6, Buick Envision/Encora/Encore/Regal/LaCrosse/Valeant, Chevrolet Malibu/Explorer/Genesis, etc.
The minimum price of One-Box models has dropped to below 100,000 yuan, and most of them are concentrated in the 100,000-200,000 range.
According to retail sales, 54.73% of the models equipped with One-Box from January to November 2023 are concentrated in the price range of 100,000-200,000 yuan, 20.71% in the price range of 20-300,000 yuan, and 11.14% and 7.73% in the price range of 30-400,000 yuan and more than 400,000 yuan, respectively.
According to monthly data, the proportion of models with more than 200,000 yuan decreased from 58.38% in January 2022 to 41.19% in November 2023, while the proportion of models with 10-200,000 yuan increased from 41.62% to 51.73%, and the proportion of models with less than 100,000 yuan increased from 0% to 7.08%.
2.2. The company is a domestic one-box leader, and it is expected to become a duopoly with Bosch in China
The company's One-Box products have a solid leading position among domestic manufacturers:
1) The first generation of products is ahead of other domestic manufacturers in terms of release and mass production.
In 2019/2021, the company released/mass-produced the One-Box product WCBS 1.0, which was the first case of a domestic enterprise. In 2021, the company will put into production with an annual output of 300,000 sets, and four more production lines will be put into operation from 2022 to 2023, and it is expected that the sixth production line will be completed in the second half of 2023. According to the production capacity of 300,000 sets of the first production line, the company's six production lines are expected to achieve a production capacity of about 2 million sets.
2) The mass production of the second-generation product is imminent, and the research and development of EMB is progressing smoothly.
In 2022, the company completed the development of the principle prototype of WCBS2.0, and it is expected to achieve mass production in the first half of 2024. The company's research and development work on the electromechanical braking system (EMB) is also underway, and the development of the A-round prototype has been completed in 2023.
3) Closer relationship with car companies, joint ventures and joint construction of production lines.
On the one hand, the company and Geely jointly established Zhejiang Shuangli Automotive Intelligent Technology Co., Ltd. to lay out automotive intelligent chassis brake-by-wire products.
On the other hand, the company has jointly carried out the construction of brake-by-wire production capacity with three well-known domestic OEMs, and purchased 170 acres of industrial land use rights in Jiangbei Industrial Concentration Zone, Anhui Province, to build an automotive intelligent chassis-by-wire chassis brake project in stages.
Most of the domestic One-Box products are provided by companies and foreign manufacturers such as Bosch.
Foreign companies include Bosch, Continental, Mando and other Global Tier1.
Among the domestic enterprises, the company is the earliest local enterprise in mass production in China, and its products have covered mainstream car companies, such as Ideal, Geely, Chery, Changan, Aion, Cialis (Wenjie), BAIC, Dongfeng, etc.
The company's market share is second only to Bosch, and it is expected to gradually form a duopoly pattern with Bosch.
Since the third quarter of 2021, the shortage of chips in giants such as Bosch has provided development opportunities for the company, and with the increase in the number of orders and the release of production capacity, the company's share has continued to increase.
In terms of retail sales, the market shares of Bosch (including BYD Fodi Power), Continental and the company in 2022 were 70.63%/10.31%/10.16% respectively, and since 2023, the company has surpassed Continental and further narrowed the gap with Bosch, with the market shares of Bosch, Continental and the company from January to November 2023 being 68.12%/11.40%/12.86% respectively.
The company's domestic substitution of Bosch is still accelerating, and it is expected to gradually form a duopoly pattern with Bosch.
2.3. With the upward upgrade of its own brand, the company's brake-by-wire products are expected to accelerate growth
Affected by industry factors + lower-than-expected sales of some customers, the company's 2023 brake-by-wire shipments are lower than expected, but its year-on-year growth rate is still significantly ahead of the industry level and overseas giants.
On the one hand, in 2023, as the problem of core shortage is alleviated, some of the company's customers' low-end fuel models will switch from the brake-by-wire solution to the ESC+ electronic vacuum pump solution. On the other hand, lower-than-expected sales of new energy vehicles (NEVs) of some of the company's customers also dragged down the company's drive-by-wire shipments.
Under this influence, the company's 2023 shipments of wire-controlled automatic products are lower than market expectations, but the growth rate is still ahead of the industry level.
With the increase in industry penetration + the company's customer price band continuing to pull upward, the company's wire-controlled shipments are expected to accelerate growth.
The One-Box brake-by-wire solution has obvious advantages in energy recovery and higher-level autonomous driving, and the penetration rate of brake-by-wire is expected to further increase with the further increase in sales of mid-to-high-end electric vehicles and the rapid advancement of L2 higher-level autonomous driving. With the acceleration of the company's own brand customers in the new energy vehicle market, the company's brake-by-wire shipments are expected to continue to grow rapidly.
The sales volume of the company's new power customers continues to grow rapidly, the new energy brands of traditional customers have started to high-end, and the demand for drive-by-wire brake driven by intelligent driving of fuel vehicle series will also increase significantly, and the demand for the company's brake-by-wire products will be greatly increased in the future.
1) New force sales maintain high growth: As the company's main new force customers, Ideal and Wenjie maintain a rapid growth momentum in sales. Ideal sold 330,000 units from January to November 2023, +191% year-on-year, and sales exceeded 40,000 units in both October and November, hitting a record high.
Sales in the first half of the year were low, but the sales of the new M7 in September were booming, driving the rapid growth of sales of the new M7, and in October, the sales volume of the new M7 exceeded 10,000 units, +133%/132% year-on-year. For example, on October 25, the official account of "AITO Automobile" said that the reservation of the M9 had exceeded 15,000 units, and the number of reservations for the Ideal MEGA had also exceeded 10,000 units within 1 hour and 42 minutes after the press conference on November 17. With the successive launch of the two new vehicles, it is expected that the sales of Ideal and Wenjie will continue to grow rapidly.
2) The new energy series of traditional car companies has started to be high-end: The customers of traditional car companies mainly include Chery, Geely, Changan, etc., and the company mainly provided brake-by-wire for its low-end new energy vehicles below 200,000, such as Chery Big Ant/Omenda, Geely Geometry A/C/E/Emgrand L, Changan Auchan Z6, etc.
Recently, the above-mentioned traditional car companies have carried out high-end upgrades to their new energy brands, such as Chery launched the high-end new energy brand Star Era series, the Ultra four-wheel drive performance version of the Star Era ES is priced at 339,800 yuan, and the price of the Zhijie S7 Pro version jointly launched by Chery and Huawei starts at 249,800 yuan, Changan has launched the AVATR 12, and the price of the high-end version exceeds 400,000 yuan, and Geely's mid-to-high-end new energy brand Galaxy has also launched the first pure electric model E8. With the high-end of traditional customers' new energy brands, the demand for the company's brake-by-wire products is expected to increase significantly.
The increase in the installation rate of the One-Box series of fuel vehicles is due to the implementation of intelligent driving: According to the retail sales volume, the installation rate of the One-Box of fuel vehicles from January to November 2023 is only 11.22%, which still has a lot of room for improvement compared with new energy vehicles.
Compared with the traditional braking scheme, the brake-by-wire can complete the pressure construction faster and the control accuracy is higher, and the active braking has obvious advantages, and the landing of high-end intelligent driving will increase the demand for One-Box.
It is expected that with the accelerated penetration of L2 and above autonomous driving, the penetration rate of drive-by-wire in the fuel vehicle series is expected to increase significantly.
3. With the continuous extension of steering/ADAS, the value of bicycles continues to increase
The company has deployed steering and ADAS based on braking, and the value of bicycles has continued to increase.
The complete intelligent driving system includes a perception layer, a decision-making layer and an execution layer: first, sensors such as cameras need to perceive and recognize objects, and then the intelligent driving domain controller accepts the perception signal, combines with the high-computing power SoC chip to make decisions on driving behavior, and finally the chassis performs corresponding operations (such as acceleration, steering, braking, etc.). Among them, the wire-controlled chassis is the core of the executive layer, mainly including brakes, steering, suspension and other components.
As a leading enterprise in the field of brake-by-wire in China, the company has extended to the steering field through acquisitions to prepare for the construction of chassis-by-wire, and at the same time, the ADAS products created by the company's own team have also begun mass production. The combination of chassis-by-wire + ADAS will greatly increase the value of the company's single vehicle.
3.1. Expand from braking to steering/suspension, and accelerate the development of chassis-by-wire
The braking, steering and suspension of the drive-by-wire chassis are highly synergistic, and the company has the technical foundation for layout steering and suspension.
Different from the traditional chassis, which independently controls the longitudinal, transverse and vertical dimensions of braking, steering and suspension, the various components of the chassis-by-wire may have the same control objectives and need to be controlled cooperatively.
The company has a deep technical accumulation in the field of braking, and has the basis for the development of steering and suspension, such as the components of brake-by-wire including valves, motors, etc., which have technical homology with the solenoid valves of the suspension and the motors of the EPS.
At present, the company is also gradually developing integrated controls such as steer-by-wire, distributed drive and suspension in combination with the specific needs of customers, and plans to complete the self-development of drive-by-wire chassis.
Automobile steering can be divided into mechanical steering and power steering according to the power source, in which the power steering evolves in the order of "mechanical hydraulic-electro-hydraulic-electric-wire control". GB 17675-2021 Basic Requirements for Automobile Steering System defines an automotive steering system as "a system used to change or maintain the direction of a car".
Steering can be divided into mechanical and power steering according to power: mechanical steering mainly relies on the driver's arm to steer, and power steering uses other power to complete the steering. Among them, the power steering system can be divided into mechanical hydraulic power steering (HPS), electro-hydraulic power steering (EHPS), electric power steering (EPS) and steer-by-wire (SBW) without mechanical connection.
EPS has the highest adoption rate, and steer-by-wire has not yet been commercialized. According to Zosi Automotive Research Institute, the adoption rate of EPS in passenger cars reached 96.4% in 2020, making it the main steering solution, while HPS and EHPS account for a relatively small market and are mainly used for commercial vehicles. Steer-by-wire can be seen as an EPS upgrade and future evolution, but the current penetration rate is extremely low.
Steer-by-wire increases the need for equipment reliability by eliminating the need for mechanical connections, and at the same time requires the ability to quickly judge and execute the driver's intentions, as well as the real-time and accurate steering. However, technical barriers and high costs make steer-by-wire currently have a low penetration rate, and it is difficult to mass produce before the popularization of high-level autonomous driving. With the development of autonomous driving, steer-by-wire may occupy the EPS space with its own advantages.
The company expanded its steering business through the acquisition of Wanda Turn. In May 2022, the company and Ruizhi Lianneng (a wholly-owned subsidiary of Wuhu Chery Technology) completed the acquisition of Zhejiang Wanda Turning, which respectively holds 45%/20% of the equity of Wanda, and the company's main business has also expanded from braking to steering.
After the completion of the acquisition, the company's steering products include two categories, namely steering basic devices and steering system assemblies.
1) Steering basic components: Taking EPS as an example, the steering system is composed of steering shafts, steering columns, steering gears, ECUs, sensors, motors, etc. The company's corresponding products mainly include steering columns, steering intermediate shafts and mechanical steering gears, and the company is also developing ECU electronic control parts with high barriers, and will start building 300,000 sets of steering ECU production lines in the second half of 2023.
2) Steering system assembly: In addition to C-EPS, the company launched the research and development of DP/R-EPS in 2022, and will start the construction of 300,000 EPS production lines in the second half of 2023. At the same time, in order to speed up the development of the chassis by wire, the company is also carrying out the layout of steer-by-wire SBW.
Wanda turned to contribute a significant increase in consolidated revenue, and has great potential to improve profitability.
Wanda Steering began to consolidate its products from June 2022 to June 2022, with sales of 1.51 million units from June to December 2022, with revenue of 572 million yuan and net profit of RMB 03 million, and sales of 1.09 million units from January to June 2023, with revenue of RMB 475 million and net profit of RMB 16 million. With the optimization of management and the synergy of parts, there is still a lot of room for improvement in Wanda's net profit margin.
At the same time, the synergy between Wanda Steering and the company at the customer level is expected to be gradually reflected, such as Wanda's supporting customers include Volkswagen, Chery, GAC Aion, Geely, BYD, GM-Wuling, etc., among which Chery, GAC Aion, Geely and other customers also have a solid cooperative relationship with the company.
3.2. Mass production of ADAS projects, and plans to build integrated domain control for driving and parking
The company's ADAS products have been mass-produced, and active parking technology is being developed to create integrated driving and parking domain control.
The company began to develop ADAS technology based on the forward-looking camera system in the fourth quarter of 2019, and the ADAS project of the advanced driver assistance system will achieve mass production in 2022, and as of the third quarter of 2023, the company's ADAS has delivered a total of 13 projects in batches, and it is expected that 8 projects will be mass-produced in the second half of the year.
The company's ADAS products can provide three technical solutions and have integrated ADAS high-precision maps, and is now developing active parking technology, aiming to create ADAS domain control that integrates driving and parking to help realize autonomous driving.
The ADAS product structure is "Mobileye platform + domain controller architecture + radar", which has been able to achieve L2+ intelligent driving.
The company's ADAS products consist of an image processing platform (Mobileye chip), a domain controller architecture, and radar. During the 2023 Shanghai Auto Show, the company unveiled the high-precision positioning camera AFC 2.0 for the first time, which can realize L2 intelligent driving such as HWA and TJA, and can achieve L2+ high-speed NOA by fusing millimeter-wave angle radar and automatic parking signals.
In addition, the ADAS scheme based on AFC 2.0 does not set up a separate domain controller, but uses a camera to realize the functions of the domain controller, and the camera fuses and analyzes the signals of multiple sensors, and finally makes executive control decisions.
The penetration rate of L2 autonomous driving is increasing rapidly, and the company's ADAS products are expected to further empower core customers.
The domestic high-level autonomous driving has just started the pilot, and it is expected that the L2 level of autonomous driving will still be the product with the fastest penetration rate from 2024 to 2025. The company's rapid advancement in ADAS products is expected to further empower existing customers.
4. Customers and products continue to expand, and overseas contributions are important increments
Customers and products continue to develop in both dimensions, and overseas business is expected to become an important increment for the company.
At the customer level, the company has gradually extended from American customers such as GM and Ford to European customers such as Stellantis, and the sales scale of several major customers is close to the domestic passenger car market, and the structure of fuel vehicles + new energy vehicle models ensures the stability of the company's orders.
At the product level, the overseas business has expanded from lightweight products such as steering knuckles and control arms to calipers, EPBs and brake-by-wire, and the value of bicycles has continued to increase. With the gradual completion of the company's Mexico factory, overseas business will become an important incremental contribution to the company.
The chairman of the company has worked in North America for many years in the early days and has rich experience in overseas markets.
Mr. Yuan Yongbin, chairman of the company, has worked in Global Tier1 in North America for many years, served as the senior manager of the North American Technical Center of Tianhe Automobile Group and the academician of Tianhe Automobile Group, and has rich experience in the American automobile market, laying the foundation for the company's overseas layout. The company has been overseas for more than 10 years, and overseas business has become an important part of the company's performance.
In 2012, the company established a joint venture subsidiary in the United States and initially started its overseas layout.
From 2015 to 2022, the proportion of the company's foreign revenue in the main business increased from 3.76% to 15.28%, with a compound growth rate of 47%, higher than the domestic 18%.
4.1. Customers: Based on GM Ford, expand to international OEMs such as Stellantis
The company has gradually expanded from North American customers such as GM Ford to European customers such as Stellantis, and the sales base of several major customers is close to the level of the domestic passenger car market.
Unlike most parts companies that have built factories in Mexico, the company's overseas business relies on traditional passenger car giants such as General Motors, Ford, and Stellantis, and supports fuel vehicles and new energy vehicles at the same time, with stable demand, with cumulative sales of more than 10 million units from several major customers, and a broad market space.
The company's overseas business was the first to supply GM in North America, and has successively expanded to other international brands.
In 2010, the North American general plan cultivated the supplier Sacki to enter the global cast aluminum steering knuckle business, and Sackdy looked for Bethel in China for cooperation.
In 2011, the company successfully bid for the GM D2xx project, and in 2012, it established a joint venture with Sacki to establish Weihai Bethel and Weihai Saab, which are engaged in the production and sales of lightweight products such as cast aluminum steering knuckles.
From 2014 to 2016, the company supplied D2xx/D2ux/E2xx/Omega and other projects to achieve mass production, and successively supplied to Poland, the United Kingdom, Mexico, South Korea and other regions.
In addition to supplying GM, the company has also cooperated with international brands such as Ford, Volvo, Stellantis and Mahindra, and its products are directly exported to the United States, Canada, the United Kingdom, France, Germany, Spain, Belgium, Sweden, Mexico, South Korea and other regions.
U.S. market: GM Ford is a leading U.S. car brand, and the company is relatively mature in the U.S. market.
In 2012, Weihai Bethel expanded the two major North American customers of GM and Ford through SAKDI, and has been supplying GM and Ford for more than 10 years, from providing lightweight product blanks such as cast aluminum steering knuckles to becoming a Tier 1 supplier to provide finished parts.
GM and Ford are among the top three U.S. auto companies, with sales in North America of 2.68 million and 2.34 million units, respectively, accounting for 45%/55% of their global sales in 2022, and their combined sales in 2022 accounted for 30% of the U.S. auto market.
European market: continue to develop Stellantis, Volvo and other customers.
In 2022, European car sales accounted for 18.48% of the global market, making it the third largest car market in the world after China and North America. For example, in 2020, the company received an order for cast aluminum control arms from a well-known European OEM, and in 2023, it began to provide cast aluminum knuckle products to the European market.
The company's main customers in Europe are Stellantis and Volvo, with Stellantis global sales of 5.8 million units in 2022, Volvo sales in regions excluding China 450,000 units, and Stellantis sales in 17 Western European countries accounted for 20% in 2022.
4.2. Products: The overseas position of steering knuckles is stable, and EPB and calipers are expected to accelerate breakthroughs
Overseas, it initially focused on lightweight businesses such as cast aluminum steering knuckles, and EPB and brake-by-wire accelerated the pace of going overseas.
Initially, the company's overseas business mainly provided GM with raw parts for lightweight products such as cast aluminum steering knuckles, control arms, calipers, subframes, and brackets, of which steering knuckles accounted for the largest proportion.
In 2019, the company replaced Sackdi as a generic Tier 1 supplier and began to provide finished parts for the above products. In addition to the lightweight business, in 2022/2023, the company's EPB and brake-by-wire products will be designated by the world's leading OEMs for the first time, and the product categories in overseas layout will be further increased.
In the field of steering knuckles, the company has become one of the main suppliers to GM Ford.
Cast aluminum steering knuckle is the company's earliest overseas business, which achieved mass production in 2014, and in recent years, it has continued to add new fixed-point projects.
The company's steering knuckle supply system in North America is relatively mature, and it is a major supplier to GM Ford in the U.S. and Mexico. In addition to the chassis part of the steering knuckle, the company also offers suspension brackets, but on a relatively small scale.
Following the steering knuckle, EPBs and calipers are expected to contribute to the new growth of overseas business.
GM Ford's EPBs, calipers and other products in the U.S. are mainly supplied by Global Tier1s such as Brembo, Continental, and ZF. As competitors such as Akebono Brake continue to reduce their braking operations in the U.S. and close their U.S. factories, the company continues to make new overseas breakthroughs in the field of EPB and calipers.
Dawning Brake has reduced its U.S. business layout, bringing a breakthrough window for the company.
Akebono Brake is a Japan-based brake parts manufacturer with the establishment of a subsidiary of Akebono Brake Corporation in the United States. In addition to supplying Japanese vehicles such as Toyota, Honda, and Subaru, it also supplies brake products such as calipers and EPBs to GM Ford.
Sugon has shut down three U.S. factories and has been caught up in counterfeiting.
In December 2019 and October 2023, Akebono Brake shut down three factories in Clarksville, Columbia, and Elizabethtown, with an operating loss of 3.7 billion yen (fiscal year ended March 31, 2023).
Akebono Brake is gradually reducing the business of its U.S. subsidiary, and will continue to operate only one plant structure in the U.S. in the future.
In addition, in 2021, the company's brake product data was falsified, which adversely affected its own development.
The exit of competitors is expected to generate incremental share of the company's overseas EPB and caliper business.
According to Marklines, in 2022, about 840,000 units of Akebo Brake were sold to GM and Ford in the U.S. and Mexico. With the successive shutdown of Sugon's braking business in the United States, it will continue to contribute incremental share to the company's calipers and EPBs in overseas markets, providing a breakthrough.
The company has rich technical accumulation on EPB and has been designated by international OEMs. In 2022, the company's EPB will obtain project cooperation from a world-renowned OEM for the first time, and start its overseas layout: the company will supply EPB and caliper assemblies, with an estimated total sales of about 177 million US dollars during the project life cycle.
4.3. Production capacity: accelerate the expansion of production line scale, covering a richer range of products
In order to undertake a large number of overseas orders for steering knuckles, as well as to develop new businesses such as EPB calipers in overseas markets, the company needs to continuously increase the scale of production capacity and diversify the types of production lines.
1) In terms of production capacity, the first phase of the project in Mexico has been put into operation, and the construction of the second phase of the project has been accelerated.
The company's overseas production capacity has expanded rapidly, and the first phase of the plant in Mexico has been put into operation in September 2023, and it has gradually begun to contribute revenue. The first phase is mainly used to produce 4 million pieces of cast aluminum steering knuckles, which can be supplied to OEMs such as GM Mexico, Volkswagen Mexico, and GM USA. Considering the rapid growth in the number of orders from customers in North America and Europe, the company has accelerated the construction of the second phase of the plant, which is expected to be put into operation by the end of 2024.
2) In terms of the type of production line, on the basis of ensuring the production capacity of the steering knuckle, the production line of EPB, caliper, subframe and other products will be added.
For example, in 2023, in addition to adding a production line with an annual output of 5.5 million pieces of cast aluminum knuckles, the company will also add 1.7 million pieces of control arms/subframes, 1 million pieces of EPB, and 1 million pieces of front brake calipers.
5. Risk Warning
The subsequent growth rate of one-box penetration rate was lower than expected and the competition in the industry intensified. Although One-Box is currently in the stage of accelerated penetration, if the growth rate slows down in the future, it will adversely affect the demand for the company's products. At the same time, the competition faced by the company mainly comes from Bosch, which still has great advantages in product technology, gross profit and shipments, and does not rule out the possibility of price war in the future.
The risk of overseas factories not reaching production on time. At present, the number of overseas orders is growing rapidly, so the company has decided to expand overseas production capacity, and if other production lines such as the second phase of the plant in Mexico fail to reach production on time, the company's delivery process will be affected.
The risk of escalation of Sino-US economic and trade frictions and US-Mexico tariff disputes. The company sells to U.S. customers as a free carrier (FCA), and the U.S. customers bear the additional tariffs, and if the overseas tariff policy changes, it may weaken the competitiveness of the company's products in the U.S. market. At the same time, if the tariff dispute between the United States and Mexico worsens in the future, it may lead to the USMCA zero tariff policy on automobiles and auto parts no longer applying, which will also adversely affect the company's overseas business.
Technology path selection risk. The development of automotive intelligent parts requires large R&D investment and a long R&D time, and if the technology path chosen by the company deviates from the technology path that has become the mainstream of the market, it may adversely affect the company's business.
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