Interpretation of Financial Reports of 20 International Component Enterprises: Bosch's Revenue Exceeding 100 Billion

2024,03,27

For global automotive parts suppliers, 2023 is mixed. During this year, there were both favorable factors, such as the continuous growth of global automobile production driven by strong demand and gradually improving supply chains, ultimately exceeding 90 million vehicles, surpassing the level of 2019; There are also adverse factors, including geopolitical uncertainty, inflation, high interest rates, and unfavorable exchange rate fluctuations. It is worth noting that in this context, most companies have still achieved their annual financial goals, with revenue, operating profit, and profit margin all increasing compared to 2022.

Revenue and profits have generally increased, and profit margins need to be improved

Data shows that in 2023, global automobile production increased by 9% year-on-year, with North America growing by 9%, Europe growing by 13%, and China growing by 9%. Thanks to the stable increase in production in the three mainstream global automotive markets, component suppliers have seen a significant improvement in their performance in 2023 compared to the past few years.

Firstly, in terms of revenue, except for Ansemy, which remained roughly unchanged compared to 2022, all other companies achieved varying degrees of increase in sales compared to 2022, with over half of them achieving double-digit growth. Bosch has achieved a breakthrough in revenue with over 100 billion US dollars, and its products have strong demand in both traditional and emerging business areas.

In terms of operating profit, except for Sensata (which was affected by expenses related to the third quarter restructuring plan and expenses related to the exit of Spear Marine business), the vast majority of companies have also achieved double-digit year-on-year growth, with Continental Group and Dena's year-on-year growth even reaching three digits.

In terms of profit margins, most companies have also increased compared to 2022, but it is worth noting that the profit margins of suppliers are still very low compared to a few years ago. The average profit margin of 20 component companies according to GAC Motor's statistics in 2023 was 7.5%, while the average profit margin of suppliers five years ago was 8.1%. In fact, over 60% of current component companies still have a profit margin of 5% or below, including component giants such as Bosch, Continental, ZF, and Magna.

A research report by Roland Berger points out that the transition of traditional component suppliers to electric and intelligent vehicles requires significant upfront investment. However, electric vehicles are still in the transitional and market popularization stages, and they are less likely to bring sufficient revenue to component manufacturers to balance expenses. In addition, the electrification business of most vehicle companies is still in a loss making state, coupled with the price war in the car market, the pressure of cost reduction is transmitted to component companies, further putting pressure on the profit margins of suppliers.

Bosch has postponed achieving its 7% profit margin target by one to two years, as the company predicts that the economic environment will be very challenging this year. "2024 will be even more challenging than expected, and the coming years will place higher demands on all of our businesses..."

Electrification and intelligence have become important drivers for business growth

Compared to traditional component giants, some suppliers who benefit from emerging automotive businesses such as electrification and intelligence have more outstanding financial performance.

For example, Ansemy, which produces sensors and chips for car companies such as Volkswagen Group, achieved a net profit of $2.184 billion and an operating profit margin of 30.8% on top of a revenue of $8.25 billion in 2023. This is due to its continuously growing silicon carbide business, which saw its revenue increase more than four times year-on-year last year. Ansemy expects that growth in silicon carbide chips and other areas will help its revenue grow at a compound annual growth rate of 10% to 12%. By 2027, its sales will expand to $13.9 billion, and its free cash flow will expand to $3.5-4 billion. At that time, it will occupy a 40% share of the silicon carbide automotive chip market.

Weipai Technology can be said to be revitalized by electrification. In 2023, Weipai Technology recorded a total of over 12 billion euros in new orders, of which approximately 8.3 billion euros came from electrification related products. As of 2023, Weipai Technology has reserved orders worth over 50 billion euros, with over half of them related to electrification. The stock orders of billions of euros in electrification business have laid a solid foundation for the future development of Weipai Technology.

Sensata has also benefited from the booming development of its electrification business. Over the past three years, the company has secured over $1.3 billion in business opportunities in the electrification sector, most of which are long-term businesses. In 2023, the company's electrification business sales increased by nearly 50%, reaching approximately $700 million, accounting for over 17% of its total sales.

Anbofu, an automotive software and electronic component supplier, achieved record high revenue, profit, and cash flow in 2023, reflecting strong growth in its related product portfolio. Under the trend of software defined cars, the company achieved record breaking new business bookings for the third consecutive year, with bookings exceeding $34 billion.

Automotive electronics supplier Weishitong has also seized the growth of new products and businesses brought about by industry trends in digitalization and electrification. Weishitong stated that its new business in 2023 increased by 20% year-on-year, reaching $7.2 billion, covering all of its core product lines. In addition, Weishitong also launched 129 new products in 2023, an increase of nearly 200% from the 45 products in 2022.

With the booming development of the global smart electric vehicle market, the pattern of automotive component suppliers is rapidly changing. New forces and traditional suppliers are competing for the rapidly growing electric vehicle market, and competition is also intensifying. As new forces seize the opportunity to move to the forefront of the electric vehicle supply chain, traditional component companies must also invest in new technologies in a timely manner to avoid falling behind.

Rising labor costs, 2024 remains a difficult year

"In 2024, it is expected that the global production growth rate of passenger cars and light commercial vehicles will be between -1% and 1%, and the automotive market still faces significant challenges." This is Continental Group's outlook for the automotive market in 2024. Specifically within the group, Mainland China has pointed out that the expected increase in labor compensation costs this year is about 500 million euros, which will have a significant impact on its profitability in 2024.

In fact, besides Continental Group, many component suppliers have mentioned the pressure brought by rising labor costs in their performance outlook for 2024. Magna International CEO Swamy Kotagiri stated in a conference call with analysts on February 9th that "we expect net input costs to further increase this year," partly due to "rising labor prices.".

Li Er's executives also listed labor wage inflation as one of the main issues facing the company. Lear's CFO, Jason Cardew, revealed that the company's salary growth rate is twice the usual annual increase of 3% -4%, which has had a substantial impact on profits.

Especially after the record breaking wage increase agreement reached between the Federation of Automobile Workers of America and the three major car manufacturers in Detroit last year, suppliers will also feel higher labor costs as they also need to maintain competitiveness in recruiting and retaining workers. But for smaller suppliers, it may be difficult to maintain competitiveness while increasing wages.

In addition to rising labor costs, inflation and geopolitical conflicts will continue to cause a weak economic environment. According to Bosch's estimation, the global economy will not begin to accelerate growth until 2025, and 2024 will also be a difficult year.

Author:

Mr. yin chang

E-mail:

yinchanghaoshuai@163.com