Zhu Huarong, the chairman of Changan Automobile, said, “The intense competition in the automotive industry has pushed Chinese brands to new heights.” Li Shufu, the chairman of Geely, said, “The degree of internal competition in China’s automotive industry is the highest in the world. It’s both a good thing and a bad thing.” Lu Fang, the CEO of Lantue, said, “If an automaker can’t survive, it could be an even greater betrayal to its existing customers.” From the BYD Qin, which launched with the slogan “Electricity is cheaper than fuel” at a price of 79,800 yuan, to the Xiaomi SU7 that emerged within the 300,000 yuan range, both established players and new entrants in this industry have brought considerable vitality to the market, but also more intense competition: many automakers have deeply engaged in price wars, and some have even updated the same model twice within a year, creating a rare scene of “three generations in one family.” So, what exactly has such intense competition brought to the upstream and downstream of the industry?
01 The government steps in: “Intrusive competition” is not advisable
During the Chongqing Forum on China’s Auto Industry, executives from several automakers all mentioned competition. Li Shufu believes that the healthy development of any industry must be reflected in achieving good economic returns through a favorable input-output ratio. Endless “intra-industry competition” and simplistic price wars will lead to shoddy workmanship, counterfeiting, and disorderly competition that does not comply with regulations. For the automotive industry, healthy competition in accordance with the law is of great importance, as it is the only way to achieve sustainable and high-quality development and consolidate the achievements China has made in electric vehicles.
The “intra-industry competition” in the automotive industry has had a significant impact on the automotive supply chain, with industry giant Tyco also caught up in it. At a media conference in early July, Sun Xiaoguang, Vice President and General Manager of Tyco’s Automotive Division in China, said that Tyco is currently facing significant pressure to lower prices and is actively reducing costs through operations and lean production to improve its products.
The predicament faced by Tyco is also being experienced by many domestic connector companies.
Deng Yihua, General Manager of Shenzhen Junhao New Energy Connector Technology Co., Ltd., told reporters that with the rapid development of the new energy vehicle market, more and more enterprises are entering this field, leading to increasingly fierce competition in the connector and cable industry. This has resulted in severe product homogenization and frequent price wars. The reasons for this are, first, the strong market demand, which has led to enterprises expanding their production capacity; second, insufficient technological innovation, making it difficult for enterprises to form differentiated competition.
This trend of “intense competition” is not only prevalent in the automotive industry but also widely exists in the connector industry. Wang Dongya, assistant director of the marketing center and material application engineer of Xingye Alloy, a leading domestic manufacturer of high-precision copper and copper alloy sheet and strip materials, said, “During my communication with downstream connector manufacturers, I can clearly feel that the current connector industry is indeed very ‘intense’. Except for military products in aerospace, the topic of cost reduction is frequently discussed in other industries.”
Zhu Junxuan, assistant to the general manager of Hanquan Group, also believes that the current global economic situation and international environment are not optimistic. With a large number of connector enterprises of varying sizes and a wide variety of products, the limited market share inevitably leads to fierce competition.
Wang Dongya believes that the core reason for the intense competition within the industry is that the growth rate of market supply exceeds that of demand. Changes in terminal demand have led many connector enterprises to enter a transformation stage, and new enterprises are constantly joining the industry. Price reduction to gain market share has become a common practice in the connector industry, and homogenized competition is becoming increasingly severe.
The increasingly severe homogenized competition and frequent price wars will make product prices lower and lower. In the short term, this is beneficial to consumers. However, in the long term, this process is accompanied by the risk of a decline in product and service quality, which is harmful to both the upstream and downstream supply chain and consumers. Therefore, relevant departments pointed out at the meeting on the economic work deployment for the second half of the year that it is necessary to strengthen industry self-discipline and prevent “intense competition” from turning into a vicious cycle. This has sounded the alarm for the highly competitive connector industry: the competition method represented by simple and brutal price wars is not advisable.
All relevant parties consider this a very positive signal.
Deng Yihua: “The state has noticed the ‘intense competition’ phenomenon in the industry and is taking measures to adjust it. This will help guide enterprises to return to rational competition and focus on technological innovation and product quality.”
Zhu Junxuan: “This actually indicates that there is a hidden danger of the competition in the industry developing in a malignant direction. The timely warning from relevant departments is beneficial for all enterprises in the industry to re-examine themselves and solidly prepare to get through the difficult times.”
Wang Dongya: “It is still difficult to predict what impact the measures to combat intense competition and their implementation will have on the industry. Let’s wait and see.”
02 Reduce costs and improve quality to break the vicious circle of internal competition
The internal competition in an industry can be described as a “theater effect”. In a theater where everyone is sitting to watch a play, if one person stands up to see better, those behind him will also stand up, eventually leading to everyone standing to watch. Everyone gets more tired, but the viewing experience doesn’t improve.
In this situation, to have a better viewing experience in the theater, sitting in the front row is a very good solution. The same is true in industry competition. Instead of engaging in a price war, moving from competing on price to competing on quality and service is the key for enterprises to move from the back row to the front row.
Wang Chengliang, the product manager of Tyco, also pointed out that continuous price reduction cannot save an industry or a market. Only by focusing on product innovation and achieving savings through the product itself can the product become more competitive. Recognizing this, Xingye Alloy developed the low-cost copper alloy material XYK-41 five years ago, helping connector manufacturers achieve “cost reduction and quality improvement”. This product has a strength and bending performance comparable to that of tin-phosphor bronze, a conductivity twice that of bronze products, and a cost reduction of 10% to 15% compared to tin-phosphor bronze (a cost reduction of 7,000 to 10,000 yuan per ton based on current copper prices). Wang Dongya mentioned, “XYK-41 has caused a strong response in the market and has been widely applied in the automotive, communication, home appliance, industrial, and consumer electronics industries, becoming a best-selling cost-reduction material.”
The core of cost reduction and quality improvement lies in quality improvement.
Regarding this point, Deng Yihua stated, “Apart from improving production efficiency, enterprises should pay more attention to customer needs, enhance service quality, and achieve product differentiation. Our Junhao New Energy has also faced the pressure of internal competition. To address this, we have increased R&D investment, centered on technological innovation, and continuously improved product quality. At the same time, we have actively expanded the market and established long-term cooperative relationships with customers. These measures have achieved remarkable results and are helping us break free from the internal competition.”
Zhu Junxuan believes that efficiency is crucial for escaping the internal competition within the industry. He said, “In the connector and cable industry, the quality of competing products varies. Seizing the early stage of R&D to make investments and establishing a technological moat in advance is the foundation for related enterprises.”
Wang Dongya shared Xingye Alloy’s innovation philosophy: “You have none, I have it; you have it, I have something new; you have something new, I have something different.” Based on this philosophy, Xingye Alloy leverages its R&D innovation advantages, focusing on import substitution and cost reduction. It deeply explores customer needs and launches 1-2 new products to the market each year, gradually iterating and updating to maintain a competitive edge.
When it comes to quality improvement, innovation cannot be avoided. Innovation is a prominent feature of new quality productivity and is also the key to promoting industrial innovation and forming new quality productivity. Wang Dongya believes that leading enterprises like Xingye Alloy should rely on product upgrades and innovation to escape internal competition. He said, “Considering the healthy and sustainable development of the industry, we (Xingye Alloy) cannot compete with them on price. We must rely on product upgrades and innovation iterations to better lead the market.”
Zhu Junxuan also expressed a similar view: “During the competition, enterprises may be leaders or followers. Regardless of the role we (Hanquan Electronics) play, we will always increase R&D investment to ensure we remain at the forefront.”
Deng Yihua said, “I remain optimistic about the industry’s prospects. Although the competition is fierce, as long as enterprises keep innovating and enhancing their competitiveness, they can secure a position in the blue ocean of new energy vehicle connectors and cables. This is exactly what Junhao New Energy has been committed to promoting.”
Regarding the methods of product upgrading and innovation, all relevant parties conducted in-depth analyses based on their own situations.
Zhu Junchuan gave an example from the consumer electronics sector. The competition in this field has reached a heated stage. With the acceleration of technological and electronic product updates, the demand for connectors and cables is constantly changing. In this process, timely grasping market demands, improving product performance and quality, and thus meeting those demands, is extremely important.
During this process, Hanquan implemented “consistent operation”, emphasizing consistency and standardization throughout the manufacturing process, in order to improve production efficiency, reduce costs, enhance product quality and stability.
Deng Yihua believes that compared to overseas competitors, Junhao New Energy’s advantage lies in its proximity to the Chinese market and its more flexible market strategies and customized services. In the competition, it is very important to fully leverage such competitive advantages. On this basis, Junhao New Energy has also established technological advantages through the following methods:
- First, continuously increase R&D investment to consolidate and enhance technological advantages.
- Second, attach importance to talent cultivation and strengthen cooperation with universities, research institutions through industry-university-research cooperation.
- Third, strictly control product quality by using advanced automated production equipment to improve production efficiency and product consistency.
- Fourth, actively apply for patents to protect intellectual property rights.
Wang Donghai said that continuously introducing advanced manufacturing equipment is also a feasible way to improve product performance and quality. This year, Xingya Alloy introduced an imported multi-roll precision rolling machine, with the thinnest achievable being 0.03mm, equivalent to the level of rolled copper foil. This can effectively solve the pain points of precision and thinness in consumer electronics connectors, and gradually achieve import substitution for high-strength and high-elasticity materials with a thickness of 0.03-0.05mm.
In addition, strengthening upstream and downstream cooperation is also a practice that many enterprises are currently exploring: Take Tyco as an example, to solve the redundancy copper problem for small signal lines, Tyco jointly developed with wire manufacturers and automation machinery enterprises, and finally launched a new solution. This “win-win” thinking is not uncommon among domestic enterprises, and the results are also very significant.
Summary
Currently, the connector industry and its upstream and downstream sectors are all in a highly competitive market environment. Clearly opposing the internal competition within the industry is not only a warning to the industry but also a clear guidance for it to return to a healthy and competitive development track. It is believed that as the anti-internal competition efforts continue, relevant enterprises will also constantly seek new paths to break through the internal competition and explore more new paths with their own enterprise characteristics.