The Benefits of Using China Auto Parts Supplier

As the automotive industry continues to grow and evolve, China has firmly maintained its position as the world’s largest auto parts production base. Whether it’s for traditional combustion engine vehicles or the rising demand for electric vehicles (EVs), Chinese manufacturers are leading the way in supplying auto parts globally. The country’s unparalleled growth in the automotive sector has not only made it the largest auto market but also the most influential player in auto parts manufacturing. In this post, we explore why China still holds the crown and what makes its automotive parts industry so successful.

With competitive price and timely delivery, MOTEC sincerely hope to be your supplier and partner.

Key Factors Behind China’s Continued Dominance in Auto Parts Production

China’s vast scale of production, cost-effectiveness, and well-integrated supply chain make it the world’s largest auto parts production hub.

From labor costs to technological advancements, the country’s manufacturing infrastructure remains unmatched. Chinese auto parts suppliers offer a unique combination of competitive pricing and high-quality products, which is why global automotive brands continue to rely on them. The country’s rapid adaptation to new technologies, such as electric vehicle parts manufacturing, has further strengthened its position in the industry.

China’s Strategic Advantages in Auto Parts Production

China’s dominance in the auto parts industry stems from several strategic advantages. These include its cost advantage, advanced technology, a strong manufacturing ecosystem, and government policies that support growth and innovation in the automotive sector.

1. Cost Efficiency
   China’s manufacturing sector remains cost-effective, mainly due to the relatively lower labor costs compared to countries like the U.S. or Japan. Though labor costs have increased in recent years, they are still far below global averages, providing Chinese manufacturers a competitive edge. Additionally, the scale of production in China allows for economies of scale that further reduce per-unit costs. This enables auto parts manufacturers to offer high-quality components at competitive prices, which is particularly attractive for international automakers looking to keep costs down while maintaining product quality.
2. Robust Supply Chain
   One of the biggest advantages China has is its well-integrated supply chain. From raw materials to finished parts, everything needed for automotive manufacturing is available within close proximity. This is particularly valuable for companies that need to manage production schedules and minimize delays. China’s automotive supply chain is not only vast but also incredibly efficient, making it easier for manufacturers to source parts, assemble vehicles, and manage logistics.
3. Technological Advancements
   Technological innovation plays a crucial role in China’s success as an auto parts manufacturing hub. The country has significantly increased its investment in automation, robotics, and AI, which has drastically improved the efficiency and precision of manufacturing processes. Additionally, Chinese manufacturers have rapidly adapted to the evolving demand for electric vehicles (EVs) and their associated components. By investing in electric powertrains, batteries, and charging solutions, China is positioning itself as the leader in the future of automotive parts manufacturing.
4. Government Policies and Incentives
   The Chinese government has been a key player in the growth of the auto parts industry. Through tax breaks, subsidies for innovation, and support for technology upgrades, the government has incentivized manufacturers to improve their production capabilities. Additionally, the government’s “Made in China ” initiative, which promotes innovation and upgrading in key industries, has had a significant impact on automotive manufacturing. This has enabled Chinese companies to continuously evolve their offerings and compete globally.

A Deeper Look into China’s Auto Parts Manufacturing Ecosystem

Now that we understand the core reasons behind China’s dominance in auto parts production, let’s take a deeper dive into the country’s automotive ecosystem to understand how it maintains its lead in the global market.

1. China’s Shift Towards Electric Vehicles (EVs)

As the automotive industry shifts towards sustainability, China has been at the forefront of this transformation. The country is the world’s largest market for electric vehicles, accounting for a significant share of global EV production and sales. This shift has created new opportunities for Chinese auto parts manufacturers to produce components tailored to electric vehicles, such as batteries, powertrains, and lightweight materials.

The growing demand for EVs is leading to new technological innovations in the manufacturing process. Chinese companies are now investing heavily in electric vehicle-specific components, such as electric drivetrains, battery packs, and specialized wiring harnesses, which are vital for the success of electric mobility.

2. China’s Competitive Export Market

China’s auto parts industry benefits from a highly competitive export market. With state-of-the-art infrastructure, such as efficient ports, rail systems, and highways, Chinese auto parts can be shipped quickly and cost-effectively to automakers worldwide. The country’s strong logistics and shipping infrastructure are key drivers of this export success, allowing manufacturers to serve a global customer base.

Furthermore, China’s participation in free trade agreements and its global economic partnerships under initiatives like the Belt and Road Initiative ensure smooth trade between China and other regions. This opens up access to international markets, further cementing China’s position as the go-to supplier of auto parts for global automotive companies.

3. The Skilled Workforce and Continuous Innovation

China’s workforce continues to be a major asset to its manufacturing prowess. As the demand for highly skilled labor in fields like automation and AI grows, China has focused heavily on education and workforce development in its manufacturing sector. The result is a highly capable labor force that can meet the increasingly complex demands of modern auto manufacturing.

Moreover, the industry’s commitment to innovation has led to a continual improvement in product quality and production methods. Chinese manufacturers have embraced advanced technologies like 3D printing, laser welding, and advanced robotics, which enable them to produce higher-quality, more precise parts while reducing the risk of errors.

Conclusion: China’s Unmatched Strength in Auto Parts Production

In conclusion, China remains the world’s largest auto parts production base due to a combination of cost advantages, technological innovation, an integrated supply chain, and strong government support. With the rise of electric vehicles and the continuous evolution of automotive technologies, China’s auto parts manufacturers are well-positioned to lead the industry for many years to come.

By maintaining low manufacturing costs, scaling production, adopting cutting-edge technologies, and capitalizing on its enormous domestic market, China is poised to remain a key player in the global auto parts market. For international automakers looking for reliable, high-quality, and cost-efficient auto parts, China is and will continue to be a top destination for sourcing and manufacturing solutions.

This article was written for the IEB AutoTech Executive Briefing[1], with over 3,000 registered participants. It was first published in Autocar Professional Online[2].

The Executive briefing sessions, covering smart electrification and carbon neutrality, sustainable mobility and E-mobility technology ecosystem are available on demand.

The global automotive supply chain is concentrated in China because of several inter-connected reasons:

1.     China is the world’s second-biggest automotive market – Light vehicle sales in China average around +20% YTD in compared to , totaled 26.9 million car units vis-à-vis YTD light vehicle sales in the United States at 19.2 million units.  The IHS Markit Global Auto Demand Tracker (Figure 1) shows that total sales in Greater China and the United States as of August YOY is US$ 60 billion and US$ 62 billion respectively.

Figure 1 Global Auto Demand Tracker

China is already the world’s largest market for electric vehicles by a clear margin when compared to Europe and the United States (Figure 2). The country‘s Li-ion battery production accounts for 50% to73% of global EV battery manufacturing capacity[3] and half of the global production[4]. The size of the market has attracted start-up companies to enter the country’s automotive industry. By the end of , IHS Markit data showed that China had over 480 start-ups in the automotive sector by registration. Irrespective of the longevity of these start-ups, they contribute to the supply chain demand and innovation around it. In the new era of “AutoTech” – the merging of electric, autonomous vehicles with ride-hailing creates a radically different car economy over the next couple of decades. In-car software and semiconductor products are widely expected in the market to make up most car costs by .

Figure 2: Electric Vehicles stock by region

2.     China has incentives and favorable policies for new energy vehicles (NEV) According to the U.S. International Trade Commission, China was the United States’ second-largest source of automotive parts imports (after passing Canada in ), accounting for nearly twice the share of U.S. auto parts imports (three times the value) that it accounted for in . Many global automotive brands, upstream suppliers, components manufacturers, and aftermarket parts companies, including joint ventures, have research and development and production facilities in China – highlighted in red in Figure 3. Some have established business relationships dated back to the s; others accelerated their local presence in the s.

Figure 3: The Global Automotive Supply Chain

There are favorable policies even before US-China trade tension intensifies as China has made moving up the global manufacturing value chain a fundamental objective and has designated the automotive sector as a core strategic industry almost ten years ago. The Chinese government provided supportive policies and subsidies for research and development, and battery and components under the - New Energy Automobile Industry Development Plan[5].

Further, the 14th Five-Year Plan (-)[6] emphasizes technology self-reliance and the environment as a priority, with China’s commitment to being carbon neutral by . New automobile technologies—new energy vehicles (“NEVs”) and intelligent connected vehicles (“ICVs”) alongside smart city planning — sit at the intersection of these strategic priorities. Though not explicitly stated, chip-making is deemed a key focus in the next five years, as China seeks to build up its domestic capacity.

After production shutdowns during the first half of due to the COVID-19 pandemic, vehicle output in Asia resumed slowly initially, affected by new safety protocols and training in those measures, and acceleration of supply chain reorganization, some shifted back onshore e.g., to the US, some shifted to other manufacturing locations e.g., South East Asia.

By the end of , disruptions to the supply of semiconductor chips to the automotive sector due to workers' absence from lockdown or ‘pingdemic’[7] started to emerge. At the time of publication of this article, supply shortage continues. This shall encourage China to become even more proactive in accessing materials that ensure components supply stability.

3.     China is a dominant player in smelting and refining batteries

Despite extraction activities that took place in diverse geographies, China dominates the mid-stream processes crucial to preparing materials for EV production[8] (Figure 4). In midstream, 80% of chemical refining is based in China, as well as 61% cathode and 83% anode production[9].

Figure 4: Main Extraction and Refining Locations of Key Materials for Automotive Batteries

… Steelmaking and even natural rubber for tires

Additional reading:
Maximize Safety: The Essential Guide to CHANGCHAI Brake Booster

If you are looking for more details, kindly visit China Auto Parts Supplier.

Over the last decade, investors committed to responsible investment have grown. The UN-backed Principles for Responsible Investment started in , has grown to 3,800 signatories with US$ 121 trillion assets under management in (Figure 5).  Signatories committed to the Principles need to submit annual reports to demonstrate how they have integrated environmental, social, and governance (ESG) considerations in their investment and active ownership activities.

Figure 5: Growth of UN-backed Principles for Responsible Investment

In the auto sector, investors focus not only on corporate governance, climate change, cleantech capacity, product safety and quality, air pollution, water, and waste management in their immediate operations. Increasingly, investors are taking a life cycle assessment (LCA) approach, taking into consideration sustainability issues in the supply chain and end-of-life management. This leads to more automotive companies committing to circular-by-design to improve the recyclability of materials and to limit the impact of extracting raw materials from nature.

China accounts for at least 55% of global steel emissions. Blast furnaces that use iron ore and coke produce around 90% of China's steel. This needs to change.  In August , CA100+ investors published Investors Expectations for the Steel Industry[10]. China has been building up its own scrap steel reserve as well as importing scrap steel, increasing the proportion of steel produced by the scrap-EAF process. This will accelerate.

About a fifth of all bovine leather produced globally is estimated to go into cars, with more than 60 million cars produced every year[11]. As more farms cut down forests to raise cattle, the sustainability of natural leather production has been raised as an ESG issue in the auto industry by investors.

Natural rubber often receives less attention than other commodities (e.g. timber, soy, palm oil), due to the nature of its production, which tends to be by smallholders via small-scale plantations or agroforestry systems. These methods of production are thought to have lower social and environmental impacts than large-scale monocultures. However, poor management practices and associated low productivity can lead to negative social and environmental impacts, including pollution, health issues, and poverty[12].

According to the Association of Natural Rubber Producing Countries, China was by far the world’s largest user of natural rubber in as original equipment manufacturers (OEMs) and after service manufacturers concentrate their production facilities in China (Figure 6)

Figure 6: Natural Rubber Producing Countries

Deforestation is not only linked to global climate adaption and mitigation, but also crucial to biodiversity and the the ecosystems, as well as to human rights in local communities, given that the auto sector is one of the top industries heavily reliant on natural rubber, palm oil, and leather products, which are the key drivers of global deforestation.

COP15 UN Convention on biological diversity, which has been delayed by a year due to the COVID19 pandemic, is expected to take place in October in Kunming, China[13]. Stakeholders of the biodiversity ecosystems have been working on improving the sustainable supply chain to support China’s leadership in these areas.

In , two years before the Forest Stewardship Council (FSC) published a position statement for companies that wish to source sustainable natural rubber, the China Chamber of Commerce of Metals, Minerals, and Chemical (CCCMC) had already been working with global partners such as the Organisation for Economic Co-operation and Development (OECD), World Resources Institute (WRI) and Global Reporting Initiative (GRI) and published a 62-page Guidance for Sustainable Natural Rubber[14]. As nature-based solutions become more mainstream for manufacturers and investors, an early mover in ensuring sustainable rubber is used in tires presents an advantage for companies with production in China both for the OEMs and after-service markets.

Meanwhile, we are delighted to see that innovative approaches to producing alternative materials for bovine leather have been successful e.g. vegan leather. With net zero and/or carbon neutral targets on the national agenda of global markets, including that of China, we expect increasing demand for automotive companies to offer more options that minimize the carbon footprint of the lifecycle of the auto sector.  

Conclusion

As highlighted in this article, the global dominance of China’s auto supply chain is the outcome of a combination of the size of the market, the range of choice of service providers, and favorable policies that sustain the long-term demand and prosperity of the industry.  

China has been focusing on smart city and charging infrastructure building as well as technology enhancement that increased automation, and hence reduce reliance on the labor force in automotive manufacturing processes as labor supply reduces and costs pick up. Geopolitical uncertainty and COVID19 may have encouraged companies to diversify their supply chain, either onshoring back to the United States or Europe, or split offshoring to South East Asia markets. This is likely to continue as a good practice for business risk management, but we expect China’s dominance in the EV market to continue in the short to medium term.

We are now a month away from COP15 biodiversity conference and two months away from COP26 climate change conference. We expect China to play a leading role in driving the NDC agenda together with other top emissions countries. Greener supply chain management will accelerate the progress to China’s carbon neutral target, and the global goal of sustainable development.

[1] https://ihsmarkit.com/events/-automotive-technology-executive-briefing/breakouts.html

[2] https://www.autocarpro.in/opinion-column/what-needs-to-change-to-diversify-the-global-supply-chain--largely-concentrated-in-china-

[3] https://www.mining.com/chart-chinas-stranglehold-on-electric-car-battery-supply-chain/

[4] IEA, Global EV Outlook , page 211.

[5] http://mddb.apec.org/documents//AD/AD2/12_ad2_006.pdf

[6] https://www.ndrc.gov.cn/xxgk/zcfb/ghwb//t_.html

[7] Pingdemic refers to workers being told not to go to work when they get ‘pinged’ by COVID tracking app as they are ddmed to have been in touch with patients who contracted coronavirus. For more information: https://www.independent.co.uk/news/business/pingdemic-car-industry-staff-shortages-b.html

[8] International Energy Agency Global EV Outlook , page 173.

[9] https://www.benchmarkminerals.com/membership/china-controls-sway-of-electric-vehicle-power-through-battery-chemicals-cathode-and-anode-production/

[10] https://www.iigcc.org/news/initiative-supported-by-investors-representing-usd-55-trillion-set-decarbonisation-expectations-for-steel-industry-in-line-with-iea--scenario/

[11] https://globalcanopy.org/insights/insight/exploring-deforestation-risk-in-automotive-leather/

[12] https://www.spott.org/news/rubber-does-natural-mean-sustainable/

[13] https://www.cbd.int/article/new-dates-cop15-october-

If you want to learn more, please visit our website KIA Aftermarket Parts.