Taiwan's auto-parts industry builds might on multiple advantages
Taiwanese auto-parts industry is blessed with several advantages: the island’s full-fledged mold industry, solid industrial clusters encompassing almost all supporting segments, well developed high-end electronics that facilitate the development of intelligent components for green-energy cars and self-driving cars, not to mention the reality that multinational auto-parts suppliers have considerably increased their purchases in Asia.
Taiwanese auto-parts makers have formed complete manufacturing chains that allow them to supply almost all kinds of diversified items in low quantity with very flexible processing skills. Backed up by this advantage, they are competitive internationally and have the potential to enter the supply chains dedicated to international carmakers.
Many of the Taiwanese manufacturers have become members of multinational carmakers’ subcontractor chains thanks to their global moves including facility investments, networking presences, outlet setups, technological cooperation, and joint venture partnership.
The Taiwanese manufacturers are advised to develop products featuring modularized designs and systematic functions in line with the rising global trend of auto parts becoming smarter, more modularized, more electrical, and lighter. In recent years, they have stepped up their R&D capability and phased in intelligent manufacturing technologies to optimize their manufacturing process.
Auto Parts Top All Automotive Industrial Segments
Statistics compiled by ITRI, which helps Taiwan’s industries develop promising technologies and locate markets, show that throughout 2018 the island’s automotive industry generated an estimated revenue of NT$612.5 billion (US$20.3 billion at US$1: NT$30), inching up 0.4% year on year. Of the industry, auto-parts segment alone accounted for 37.1% with revenue of NT$227.4 billion (US$7.5 billion), followed by automotive electronics’ NT$220 billion (US$7.3 billion) for a 36% and complete vehicle’s NT$164.9 billion (US$5.4 billion) for a 26.9%.
According to statistics released by the Ministry of Economic Affairs (MOEA), Taiwan exported US$7.2 billion worth of auto parts throughout 2018, increasing 1.07% from the previous year. The United States was the largest export destination for Taiwan’s auto parts, absorbing 49% of the 2018 exports alone; followed by mainland China’s 6%, Japan’s 6%, England’s 4%, Germany’s 3%, Mexico’s 3%, Canada’s 3%, and Italia’s 3%. Taiwan is America’s ninth major source of AM auto parts, according to IEK.
The top five auto parts that Taiwan exports are motor-vehicle components, body parts and associated components, motor-vehicle lamps, auto lamps, and wheels and associated components. Most of these products go to aftermarket service providers worldwide.
Of Taiwan’s 2,500-some auto-parts providers employing a total workforce of around 90,000 workforces on the island, over 85% depend on aftermarket orders. Thanks to their willingness to accept small orders, Taiwanese
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.
Competitive advantages for Taiwan’s auto-parts industry, IEK analyzes, include close supply chains built on dense industrial clusters, outstanding quality developed on excellent manufacturing technique, and their transformation and innovative capability that make them sensitive to business opportunities.
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 local leading manufacturers have entered into supply chains of multinational big-name vendors through making investments, opening factories or outlets, and forming technical cooperation or joint venture overseas. Their global presences, whether targeting aftermarket, original equipment manufacturing (OEM), or original design manufacturing (ODM) market, provide them with the chance to accumulate substantial experience in the aspects of international trade and manufacturing capability.
Since the 1980s, when a number of quality Taiwanese suppliers specializing in aftermarket replacement parts began aggressively exploring the North American market for aftermarket auto parts with their less expensive products, the world’s automotive aftermarket has seen a dramatic evolution: In addition to quality and manufacturing capability, production mode stressing small volume in diversified spec and manufacturing
that meets tailored needs for the parts are even more crucial than any others to competitiveness. In late 1990s, Taiwanese parts suppliers began dominating the North American automotive aftermarket, collision- parts segment in particular, with these advantages.
After gaining a solid foothold in North America, the world’s largest automotive aftermarket, Taiwan-made auto parts have begun expanding into almost everywhere worldwide thanks to good quality and durability not to mention their competitive prices. To pursue the lucrative market, many Taiwanese manufacturers have entered into alliances to provide their own specialties as the basis of co-marketing programs, which they define as one-stop-shopping services.
Thanks to the even larger share of the global market that Taiwanese auto-parts makers have won, auto parts continue playing a major role in Taiwan’s manufacturing industry as a whole and helping boost the island’s economic development and international trade. The parts industry is increasingly taking advantage of information-communication technology (ICT), precision manufacturing skills, and processing expertise to further sharpen its product quality so that the manufacturers can keep their exports grow steadily.
Taiwan is known to global buyers as the most important supply base producing a long list of auto-parts categories that are competitive, quality and satisfactory.
Division of Labor as the Key to Success
One of the most important factors behind Taiwan’s success in quickly snatching up global auto-parts market is an army of highly efficient subcontractors that constitute a core-peripheral manufacturing network supporting local automakers. The synergic interaction allows them to crank out a wide range of products at lower costs and in shorter time with flexible methods. Now, thanks to their impressive processing techniques, many of them have been even contracted to supply aircraft and electrical vehicle builders the parts.
Although the majority of Taiwanese auto-parts makers remain in the rank of SMEs and have yet to build name at global level, their products are already well-received among international buyers after their years of efforts to expand sales into overseas markets from the relatively small market in Taiwan.
2018 Exports Decline on Trade Tension
Taiwan's auto-parts makers have seen steady export growth in recent years in the global AM parts market thanks to their strong competitiveness, excluding
2009 when the global financial meltdown hit hard the global economy, 2016 when a moderate demand drop in the U.S. disturbed the global economy, and 2018 when the trade tension between the U.S. and mainland China impacted the global economy.
According to TTVMA, throughout 2018 Taiwan shipped NT$214.7 billion (US$7.156 billion) worth of auto parts, down 0.11% from 2017’s new high of NT$214.9 billion (US$7.163 billion). In the Jan.-Aug. period of 2019, the exports rose 2.23% year on year, to NT$144.1 billion (US$4.803 billion).
Taiwan’s exports of OEM-based auto parts to Japan have increased as a result of the close technical ties between Taiwanese auto assemblers and Japanese technique suppliers, from which Taiwanese have learned how to sharpen their quality and pare down cost.
Since the 1990s, the United States has become the foremost export destination for Taiwan-made AM-based collision parts, such as bumpers, engine hoods, door panels, fenders, radiators, head and tail lamps, and side mirrors, absorbing over 40% of the Taiwan exports. Behind the export feat is the fact that a growing number of American insur ers agrees their clients to have their warranty-expired cars repaired with AM parts, which call for relatively lower premium than parts from original equipment manufacturers.
Like their climbing America’s exports, Taiwanese auto-parts makers have also seen their AM-parts exports to Europe increase steadily in recent years although AM-parts market just began taking off in the region only a few years ago. Behind their increasing European exports is that more and more testing and certification laboratories like TUV and Thatcham have begun certifying some AM parts, which are acceptable to European insurers and consumers seeking affordable premiums.
While automotive electronics are increasingly playing a vital role in the trend of making vehicles safer, less polluting, smarter, more energy efficient, more electric, and more connected, ITRI points out in 2018 alone the Taiwan industry generated revenue of around NT$220.2 billion (US$7.3 billion), outstripping the NT$164.9 billion (US$5.5 billion) turned out by the island’s vehicle-assembly sector in the same year.
Thanks to their increasingly entering a vehicle’s major parts such as engine, body, chassis and safety, automotive electronics are taking up a growing percentage of the value of a car—from about 26% in 2003 to over 40% in recent years. In upscale makes and models, they are even estimated to account for a half as the higher the electronic content is, the pricier the car is.
Taiwanese automotive- electronics suppliers mostly focus on four major market segments: driver information system, vehicle body, engine power train, and active/ passive safety. According to the government-backed industrial institute Automotive Research & Testing Center (ARTC), driver information system accounts for around 38% of Taiwan’s auto-electronics production in 2016, leading vehicle body’s and engine power train’s 29%, respectively, and active/passive safety’s 11%.
Statistics complied by the government-backed industrial think tank Industrial & Economics Knowledge Center (IEK) show that Taiwan’s automotive electronics production posted a strong growth as a whole in the past decade, jumping to approximately US$7.3 billion in 2018 from 2006’s US$1.87 billion. It projects the Taiwan industry’s production revenue to top US$9 billion in 2020, with drive information system contributing around 54%, power train 24%, and body system around 10%.
An increasing number of electronics players on the island have begun developing advanced automotive- electronic systems and components that are priced reasonably for customers around the world, backed up by Taiwan’s electronics and ICT industries that are worldwide known for their significant contract capacities to crank out microchips and smartphones for major global brands.
Over the past few years, many local companies have made significant headway in entering auto-electronics production for both OEM and AM markets. They have introduced tire-pressure monitoring systems (TPMS), lane departure warning system (LDWS), blind spot information system (BLIS), 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, advanced driver assistance systems (ADAS) has become their another R&D focus, which has paid off and come to fruition.
There are only a handful of automotive-electronics companies in Taiwan that are considered as tier one at global level as a result of the island’s relatively small vehicle-assembly industry, but a large number of them are already outstanding tier-2 or -3 suppliers to global automakers. Many local automotive-electronics producers have not only gained a solid foothold in the supply chains supporting international automakers but are also playing an important role in the mainland Chinese market as well 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 daring industries in the years to come. The ministry’s IEK points out that many Taiwanese automotive electronics makers have made inroads into the segments of navigation, infotainment, imaging systems, and so on, with the majority of which have built technical capability by tweaking their consumer-electronics products and solutions to fit in telematics systems.
Although Taiwan’s auto-parts makers are trying to ride on the rising technological trends of auto electronics—self-driving, Internet of Vehicle (IoV), and electric vehicle—to push into the global market, it still hard for them to break into the supply chains catering to multinational carmakers as a result of their complicate verification process and time- demanding production going from design to manufacturing, not to mention the relatively small scales of most of the island’s auto-parts makers. Entering into alliance is considered to be the only way for the Taiwanese manufacturers to get out of the predicament of being only second- or third-tier suppliers in the whole eco system.
Coordinated by Taiwan Electrical and Electronic Manufacturers’ Association (TEEMA), which represents over 3,000 electric and electronics manufacturers registered in Taiwan, 28 leading Taiwanese manufacturers from semiconductor, information- communication technology, electric-vehicle, and car-making industrial sectors formed an industrial consortium named Taiwan Autotronics Collaborative Alliance, or Taiwan V-Team, in March 2017. The team has ever since been intensively tapping into the North American market by improving electric vehicle’s speed and developing smart tires as their first step into the global market for automotive electronics.
While acting as a bridge between Taiwanese auto- electronics makers and government organizations and research institutes, Automobile Electronics Consortium, TEEMA’s another affiliate, also organizes consortium members to visit mainland Chinese manufacturers over business opportunities.
In February 2018, the semi-official Taiwan External Trade Development Association (TAITRA) helped local manufacturers organize an alliance to enter global market for electric vehicles by taking advantage of the island’s full-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 potential contracts.