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Flexible Manufacturing Sharpens Competitiveness of Taiwan’s Auto-Parts Industry

2019-05-14 12:26:45

Taiwanese auto-parts makers usually form industrial lusters at home to make diversified, customized products in low and flexible quantity with their well- equipped software and hardware tools. Recently, they have entered into an alliance with the aim of promoting their products on the global market for electric vehicles.

Auto Parts Top All Automotive Industrial Segments

Statistics compiled by the Industrial and Economics Knowledge Center (IEK) of the government-funded Industrial Technology Research Institute (ITRI), which helps Taiwan’s industries develop promising technologies and locate markets, show that throughout 2017 the island’s automotive industry generated an estimated revenue of NT$610.9 billion (US$2.03 billion at US$1: NT$30), with auto-parts segment alone accounting for 35.6% to top all segments. Automotive electronics represented 34%, followed by complete-vehicle sector’s 30.4%.

According to statistics released by the Ministry of Economic Affairs (MOEA), Taiwan exported NT$215 billion (US$7.2 billion at US$1:NT$30) worth of auto parts in 2017 alone. The United States was the largest export destination, absorbing 44.7% of the 2017 exports alone; followed by Japan’s 6.37%, mainland China’s 4.7%, England’s 3.4%, Netherland’s 2.7%, and Germany’s 2.7%. Together, the five markets took up 62% of the Taiwan exports for 2017.

IEK points out that the island’s auto-parts manufacturers have seen their exports, mostly composed of mechanically processed products and plastic-injection products, increasing year on year thanks to their strength in manufacturing and rich experience in international trade. Many leading manufacturers have entered into supply chains of multinational big-name vendors through making investments, opening factories or marketing outlets, and entering into technical cooperation or joint venture overseas. Their global presences, whether targeting after-sales, original equipment manufacturing (OEM), or original design manufacturing (ODM) market, provide them with the chance to pile up substantial experience in international trade and manufacturing capability. 

Competitive advantages for Taiwan’s auto-parts industry, IEK analyzes, include close supply chains based on dense industrial clusters, outstanding quality based on excellent manufacturing technique, and mastery of business opportunities thanks to their transformation and innovation capability. 

Since the 1980s, when a group of Taiwanese suppliers of quality and reasonably-priced aftermarket replacement parts began aggressively exploring the world’s largest vehicle and auto-parts market, the world’s automotive aftermarket saw a major change— quality and manufacturing capability do count, but the small-batch, large-variety production mode, or higher flexibility, and a group of increasing number of players to meet different kinds of demands (parts items) are even more important for competitiveness. In late 1990s, Taiwanese parts suppliers had overwhelmed the North American automotive aftermarket, especially in the so-called “collision-parts” segment; while such advantageous status has been lasting to now.

After gaining a solid foothold in the world’s largest automotive aftermarket, Taiwan-made auto-parts have been venturing into almost every market worldwide if there are vehicles running on roads, then thanks not only to good quality and durability, competitive prices; but also increasing product comprehensiveness in conjunction with more and more players joined the lucrative business to form a collateral strength, or one-stop-shopping service.

With the back by a big group of quality and innovative suppliers having been winning increasingly higher share in global market, Taiwan's auto-parts sector continues to be a significant part of the overall manufacturing industry on the island, to play a vital role to contribute to Taiwan's economic development and international trade; with the sector also increasingly tapping information technology, precision manufacturing and processing expertise to help exports increase steadily over the years.
The island’s auto-parts industry has been enjoying clear export-value gains for over a decade with few exceptions. As it has grown into one of the globally- competitive traditional manufacturing lines on the island, it continues to hold promise for further growth in the future rather than being threatened by digitization as some traditional sectors.
Global buyers know very well about Taiwan has long been the most important supply base and production citadel of a long list of auto-parts product categories with unmatched global competitiveness; not only in quality and product comprehensiveness, but also reasonable prices and most satisfactory services. Among all parts exports from the island, the automotive lamp, body parts, rubber tire, rearview mirror, wheels and rim, and other vehicle parts together account for a very high percentage of 75%. The auto lamp alone, however, occupies a near-15% share in the island’s overall auto-parts exports.

Keys to Success

One of the most important factors leading to Taiwan’s big success in global auto-parts market, most informed observers and buyers agree, is a comprehensive, highly efficient subcontractor network that makes up a central-satellite plant system within which individual parts manufacturers specialize in specific processes. Besides boasting world-class precision where Taiwanese suppliers now turn out parts for aviation heavyweights and premium EV makers, this system enables high production flexibility, broad product range, lower production costs, and fast development time.
Another notable achievement is that the great majority of Taiwan's auto parts and accessory makers are small-to-medium-sized enterprises (SMEs) who have not built names as international heavy-weights, however, has not been hurdles to their popularity among global buyers, but have had to focus on export sales because of the relatively small domestic market.

Approximately 80 percent of their exports go to the global aftermarket (AM), making Taiwan one of the world's most important supply bases for AM replacement auto parts, which is partly attributable to the makers' willingness to accept small orders. Statistics compiled by Taiwan Transportation Vehicle Manufacturers' Association (TTVMA) show that currently about 2,500 makers of auto parts and accessories (with total workforces of approximately 90,000 people) operate on the island, including approximately 300 original equipment (OE) suppliers, many of whom also produce AM products.

Expected Record-high Exports in 2017 
With strong competitive advantages in the global AM parts market, Taiwan's auto parts makers have been enjoying stable export growth in recent years, with few exceptions only in in 2009 due to the global financial meltdown heavily impacted on the global economy, and in 2016 due to a minor demand drop from the U.S.

According to TTVMA, throughout 2017, Taiwan’s auto-parts exports increased approximately 1.7% year on year, to a new high of NT$214.9 billion (US$6.9 billion at US$1:NT$30.8). In the Jan.-Sept. period of 2018, the exports inched down 0.82% from a year earlier, to NT$159.7 billion (US$5.18 billion). By output value, ITRI estimates the Taiwan industry to put out NT$206.2 billion (US$6.69 billion) worth of parts by the end of 2018, an increase of 3.1% year on year, although the exports may be decreasing.

With close technical cooperation ties between auto assemblers in Taiwan and technical partners in Japan, the exports of Taiwan-made auto parts to Japan on OE-basis have been increasing thanks to good quality and cost competitiveness. The U.S. has been the most important export market for Taiwan-made collision parts (parts often replaced after vehicle collisions such as bumpers, engine hood, door panels, fenders, radiators, head and tail lamps, side mirrors, etc.) since 1990s, accounting for more than 40% of the overall; and the exports have been increasing in conjunction with the increasing adoption of AM parts by American consumers due to permission by their insurers, who agree to charge lower premiums based on relatively cheaper Taiwan-made AM parts, which is acceptable on warranty-expired cars but not on newer cars due to factory requirements.

Exports of AM auto parts to Europe have also been increasing steadily in recent years, as more and more certification systems, such as TUV, Thatcham, etc., have made it viable for a rapidly increasing number of certified items to be accepted and opted by insurers and consumers for higher premium affordability, though the AM replacement parts market in the region just took off gradually a few years ago.

Automotive electronics are being applied to play a vital role in the trend toward safer, higher-performance, cleaner, smarter, more energy-efficient, electric, and connected vehicles.  ITRI estimates in 2018 alone the Taiwan industry generated revenue of around NT$200.2 billion (US$6.5 billion), close to the revenue put out by the island’s assembled- vehicle sector in the same year.
Thanks to their increasing applications everywhere on a vehicle, from engine, body to chassis and safety, automotive-electronics systems are capturing a growing share of the value of a car, from about 26% in 2003 to over 40% in recent years. And as expected the more expensive the car, the higher the share occupied by electronics, it can even reach more than 50% particularly in upscale makes and models.

The greatest majority of Taiwanese automotive- electronics suppliers focus on four major market segments, including driver information (which accounted for about 38% of Taiwan’s auto-electronics production in 2016, according to domestic industrial research institute Automotive Research & Testing Center, or ARTC); vehicle body (29%); engine powertrain (29%) and active/passive safety (11%).
Statistics compiled by ARTC also show that Taiwan’s overall automotive electronics production saw a clear
and fast growth in the past decade, from about US$1.87 billion in 2006 and US$5.83 billion in 2015, to about US$6.1 billion in 2016.

Backed by Taiwan’s world-class electronics and ICT (information and communications technology) industries as shown by its significant subcontract capacities to turn out semiconductors and smartphones for major global brands, an increasing number of players on the island are developing advanced, reasonably- priced automotive-electronic systems and components for customers around the world.
Local companies have made significant headway in both the OE and AM segments of the auto-electronics market over the past years. Among their achievements are the development of tire-pressure monitoring systems (TPMS), lane departure warning system (LDWS), BLIS (Blind Spot Information System), telematics on-board units (OBUs), charge-coupled device/complementary metal-oxide semiconductor (CCD/CMOS) cameras, thin film transistor-liquid crystal displays (TFT-LCDs), engine control units (ECUs), AC/DC converters, light-emitting diode (LED) lamps, and night-vision systems. In recent years, their R&D focus has moved toward the Advanced Driver Assistance Systems (ADAS), and has achieved many fruitful results.

Taiwan’s relatively small assembled-vehicle industry means that there are not many international tier-1 automotive-electronics companies on the island, but a large number of local firms are outstanding tier-2 or -3 suppliers to global automakers. Many domestic automotive-electronics producers have not only gained a solid foothold in the supply chains of global automakers, but are also playing an important role in the Chinese market by supplying reasonably-priced, high-quality systems and parts to automakers there.

The Ministry of Economic Affairs says that the automotive electronics market will grow rapidly and become one of Taiwan's future star industries. The industry's explosive growth is already apparent, with production value rising from US$1.86 billion in 2006 and US$5.02 billion in 2014, to the record high of 2017.
The Industrial Economics & Knowledge Center (IEK), an industrial knowledge center under the domestic Industrial Technology Research Institute, points out the annual production is expected to continue to grow by more than 10% in 2016, which will outstrip the island's overall assembled-vehicle production value. The knowledge center also points out that many Taiwanese automotive electronics makers have made inroads into the segments of navigation, infotainment, imaging systems, etc., and the majority of them have cultivated technical capability by tweaking their consumer-electronics products and solutions for applications in telematics-related fields.

Although Taiwan’s automotive industry is trying hard to ride on the rising global trend of the industry’s technology—self-driving, Internet of Vehicle (IoV), and electric vehicle—to push into the global market, it seems hard for the Taiwan industry to enter into the supply chains of multinational carmakers because of the carmakers’ complicate verification process, the time-demanding production going from design to manufacturing, and the relatively small scales of most of the island’s auto-parts makers. The only way for the Taiwan industry to get out of the predicament of being only second- or third-tier suppliers in the chains is that the Taiwanese manufacturers should enter into alliance.

In March 2017, 28 leading Taiwanese manufacturers from semiconductor, information-communication technology (ICT), electric-vehicle, and complete-vehicle industrial sectors, coordinated by the Taiwan Electrical 
and Electronic Manufacturers’ Association (TEEMA), which represents over 3,000 electric and electronics manufacturers, to form the Taiwan Autotronics Collaborative Alliance (Taiwan V-Team). The team has been since actively tapping into the North American market, improving electric vehicle’s speed, and developing smart tires to push into the global market for automotive electronics.

The Automobile Electronics Consortium, another TEEMA affiliate, acts as a cooperation platform among local automotive electronics makers, government organizations, and research institutes, not to mention organizing consortium members to visit mainland Chinese manufacturers over business opportunities

In February 2018, the semi-official Taiwan External Trade Development Association (TAITRA) coordinated local manufacturers to form an alliance aimed at developing overseas market for electric vehicles, taking advantage of the island’s fully-fledged supply chains. Three months later, the association led a trade delegation composed of over 30 local manufacturers from complete-vehicle, motor, safety-control, powertrain, battery, and smart-communication system-integration sectors to visit India for business opportunities. In addition, TAITRA installed an electric-vehicle promotion booth at its first “Taiwan Image Exhibition” in India to show Taiwan’s manufacturing strength in electric vehicles. On the sideline, the Taiwanese manufacturers met with Indian buyers at one-on-one purchasing conference. Afterward, the Taiwanese exhibitors visited Indian electric-vehicle makers for prospective contracts.