Industry Focus >>德國汽車零組件產業發展與臺灣廠商機會

German Auto Parts Industry
Development and Opportunities for
Taiwanese Manufacturers

The German automotive industry has always been regarded by the federal government as a core industry to drive employment, economic
growth and maintain global competitiveness. It used to be the leader of conventional (internal combustion engine) vehicles. As its deploymentof the EV industry is relatively late, in recent years, it has been committed to investing in various infrastructure and the use of policy tools
to encourage investment and research and development, in hope of catching up with the global trend of industrial change. In December
2020, the EU announced a 55% reduction in greenhouse gas emissions by 2030 (compared to 1990) and a carbon neutrality target by 2050.
The pneumonia epidemic since 2020 has affected the supply chain ecology, and the growth of electric vehicles or vehicle electrification will
accelerate the impact on the traditional vehicle and parts industry, which may bring business opportunities for Taiwan manufacturers.

Hardware & Fastener Components - no.57/2023

1. Germany's Macro-economy and Automotive Industry116

Germany is a member of G7, and the Ruhr is a traditional industrial coal and steel area in Germany. Munich (location of BMWheadquarters), Hamburg, Stuttgart (Mercedes Benz and Porsche headquarters), Wolfsburg (VW headquarters) also form a strong
manufacturing cluster, Berlin, Leipzig, Dresden is the eastern heartland of German manufacturing, and the emerging industries areconcentrated in the Munich area.
Germany is a highly developed market economy with strong economic strength. It is the world's fourth largest economy and Europe'slargest economy. It is highly dependent on trade. It has the world-leading automotive manufacturing, electrical, machinery manufacturing
and chemical industries and is quite competitive in the global manufacturing industry. German automotive industry drives 60% ofEurope’s R&D and 20% of Germany's output value. 5.5 million passenger cars in Europe come from Germany, and 1/3 of theglobal automotive research and development expenditure come from Germany. 78% of Germany-made vehicles are exported.
20% of the global automotive production lines are related with Germany. Its automotive and components industry occupies apivotal position, thus showing the influence of German manufacturing industry. Table 1 shows Germany's macro-economy and theautomotive industry.

2. Production and Sales of Automobiles, Components and EVs in Germany(1) Overview of German Automotive Industry
Automobile and components manufacturing is the core industry of Germany. In 2020, the output value of the automobile
industry was US$500.9 billion, with nearly 1,000 automobile and components manufacturers and more than 880,000 people working in theautomobile-related industry. Automobile and components manufacturing is the largest export-oriented industry, wherein the production valueof automobiles was US$ 402.6 billion, US$ 14.2 billion for car bodies, and US$ 84.1 billion for automotive components. With the epidemicIndustry Focus >>Table 1. German Macro-economy and Automotive Industry
Items

2019

2020

2021

2022(e)2023(f)GDP (Trillion USD)

4.7

4.5

4.8

5.2

5.5

GDP Growth (%)

1.1

-4.6

3.1

4.6

3.3

Investment as Percent of GDP (%)

22.1

21.1

22.3

22.2

21.8

Population (Unit: 10,000 People)

4,219

4,174

4,1414,192

4,170

Income Per Capita (USD)

56,52354,551

58,15062,404

63,330Automotive Industry Workforce (Unit: 10,000 People)

92

88

87

86

84

Car ownership (Unit: 10,000 Vehicles)

5,063

5,139

5,216

5,294

5,386

Data source: International Strategic Development Institute of Industrial Technology, ITRI (Jan., 2023)

under control and the adjustment of supply chain,
the production value of the automotive industry was
US$523 billion in 2021, including US$16 billion for
car bodies, US$412.8 billion for cars, and US$94.2
billion for parts and components, representing a
growth of 2.5% and 12.0% respectively compared
to 2020. The production value forecast for German
automotive industry is shown in Figure 1.

Hardware & Fastener Components - no.57/2023

In 2021, the export value of the automotive
industry was US$368.9 billion, down 4.4% compared
to 2020 due to the pandemic, but still topping theexport values of Germany in the past 10 years.
Meanwhile, automobiles, parts and components werealso Germany's most important import items, with animport value of US$223 billion, up 6.4% compared tothe same period of the previous year, which translated
to a trade surplus of US$145.9 billion. In 2021, due tothe continuation of the pandemic and the shortage ofautomotive chips, German cars sales in China, Japan,India, the United States and Russia decreased, butthere was improvement only in the Brazilian market,
and only a minor increase in Europe. Germany's main
car exporting destinations in order are the UnitedStates, China and the United Kingdom. Besides,
the Chinese market has long become an important
profit source for VW, Benz, BMW and other car
manufacturers. The Chinese car market directly
drives the profit for German car industry.

118In 2021, Germany produced a total of 3.353 million
units and sold 2.922 million units of various types ofvehicles. Due to the continuing pandemic, car chipshortage and other factors, the production and sales
declined by 9.7% and 9.2% respectively compared
to 2020, of which 2.59 million units of passenger
cars were sold, accounting for 88.6%, Figure 2 isthe German car production and sales forecast. VWranked first with 18.5% of the market share, Mercedes
Benz came in second with 9.4% and Ford followedwith 7.8%. The top five car manufacturers accounted
for 50.8% of sales volume.
In t he past two yea rs, Ger ma n automobile
manufacturing industry has shown a decline inproduction and sales of automobiles, and it was
the same for commercial vehicles and parts andcomponents. With the development of EVs, carbon
dioxide emissions will continue to decrease. By 2023,
the number of new EVs developed by automakers

Fig. 1. Production Value Forecast for German Auto Industry
700,000
600,000
500,000
400,000
300,000
200,000
100,000
02019

2020

2021

2022(e)2023(f)Whole Car482,315402,627

412,830

411,855421,100

Car Body

15,991

14,20816,01015,98616,145

Unit: US$ 1 Million

Parts/Components

99,50484,09094,15289,45390,230Auto Industry

597,810

500,925

522,992

517,294

527,475

Data source: FOURIN; International Strategic Development Institute of Industrial Technology,
ITRI (Jan., 2023)

Fig.2. German Car Production and Sales Forecast
600
500
400
300
200
10002018

2019

2020

20212022(e)Production

529.3

500.0

371.3

335.3

365.2

Unit: 10,000 Vehicles

Sales

376.4

395.7

321.9

292.2

312.8

Production Growth

7.1%

-5.5%

-25.7%

-9.7%

8.9%

Sales Growth2.6%

5.1%-18.7%

-9.2%

7.1%

15%
10%
5%0%
-5%
-10%
-15%
-20%
-25%
-30%

Data source: FOURIN; International Strategic Development Institute of Industrial
Technology, ITRI (Jan., 2023)

Fig. 3. Forecast Sales Value of Auto Parts andComponents in Germany
125,000

10%

120,000

5%

115,0000%

110,000-5%

105,000

-10%
2019

2020

2021

2022(e)2023(f)Sales Value

121,386

112,570

118,311

120,677

122,125

Growth Rate

3.1%

-7.3%

5.1%

2.0%

1.2%

Unit: US$ 1 Million

Data source: VDA; International Strategic Development Institute of Industrial Technology,ITRI (Jan., 2023)

Industry Focus >>Fig. 4. Forecast of Taiwan's Import and Export with Germany on
Automotive Parts and Components
20015010050020182019202020212022(e)Value of Taiwan Export
to Germany

125

118

110160170

Value of Taiwan Importfrom Germany

124

120

109134

142

Export Value Growth

4.5%

-5.7%

-7.2%

45.7%

6.5%

Import Value Growth

7.1%

-3.2%

-8.7%

23.0%

5.9%

Unit: US$ 1 Million

Data source: Customs Administration, Ministry of Finance; International Strategic Development
Institute of Industrial Technology, ITRI (Jan., 2023)

60%
40%
20%
0%-20%

will expand twofold to more than 150 models.
Industry investment in R&D of non-fossil fuelalternative vehicles is expected to reach US$57
billion by 2024
In terms of external investment, Germany's
three largest car manufacturers are actively
investing in setting up plants in foreigncountries. Other than having a plant alreadyset up in China, VW deploys wide, with125 manufacturing plants in Europe andmanufacturing sites in 11 countries including
America, Asia and Africa. Daimler has set up
plants in South Africa, Hungary, Romania,
France and the United States. BMW haschosen the United States, Mexico, SouthAfrica, India and Brazil. On the one hand,
BMW takes advantage of local production
to reduce production costs by localizing thesupply chain; on the other hand, BMW breaks
free from the high tariffs or administrative
measures imposed by some countries on car
imports, and is able to supply local consumers
and grab local market share. To cope with thetransformation of Germany's domestica u t o m o b i l e i n d u s t r y, a u t o m o b i l emanufacturers will consider whether
to move the production of conventional(internal combustion engine) automobile
factories to overseas locations. Germanplants will focus on deploying EVs, which
is worthy of attention.

Hardware & Fastener Components - no.57/2023(2) Overview of German Auto
Parts Production and Sales
as Well as Import andExport with Taiwan

120

G e r m a ny's a ut omot ive pa r t s a ndcomponents is a very complete industry chain,with some companies ranking among thetop 10 in the world in terms of revenue, suchas Bosch, Continental, ZF, etc. In addition
to supplying domestic car assemblers, mostcompanies are also actively setting up factories
around the world. Figure 3 shows the forecast
sales value of auto parts and components
in Germany, which was US$118.3 billion
in 2021, up 5.1% from 2020 affected by thepandemic. With the pandemic stabilizing andthe resumption to normal economic activities,
the forecast sales value for 2022 was US$120.7billion, a 2.0% increase from 2021.
Germany and Taiwan have very close traderelations. In 2021, Taiwan exported US$210
million of automotive parts and components
to Germany, accounting for 3.3% of theexport value, second only to the United States(52.7%), Japan (5.2%), and China (4.0%). Other
types of automotive parts and components(Customs code 8708) made an export valueof US$ 160 million. The main exported partsand components were machined wheels, axles,gears, gearboxes, generators and electricalparts and components, etc. Taiwan imported

Industry Focus >>US$200 million of various automotive parts and components from Germany, accounting for 7.2% of the import value, second only to Japan(30.4%), China (26.7%), Thailand (7.6%). Other types of automotive parts and components (Customs code 8708) made an import value of
US$130 million. The main imported parts and components were engine brake control system, chassis control system, steering system, etc.
Figure 4 shows forecast of Taiwan's import and export with German on automotive parts and components (Customs code 8708).

3. Restructuring of EV Components Industry
EVs need to go through a power conversion process of power generation, recharging and discharging. The 35% energy utilization rate ofpure EVs is much higher than the 10-20% with conventional internal combustion engines. The power batteries in an EV takes up 40-50% of
the whole vehicle structure. Although the unit price of power batteries is going down year by year, the price remains high. The most importantfeature of EVs is less use of conventional internal combustion engine components and increased integration of electrified components andpower semiconductor components.
The power batteries account for the highest cost of EVs (40-50%), followed by the drive system, and the cost ratio of conventional internal
combustion engines is down to 10-20% from 22-24%. EVs use electric motors (33-43%), electric motor drives (39-47%), car controllers (48%), transmissions and drive shafts (8-10%), and cooling systems (4-6%) to replace existing engines (35-40%), auxiliary equipment (1822%), transmissions (20-27%), and exhaust systems (8-11%). Other costs for EVs include the vehicle body (8-19%), chassis (5-9%), and othercomponents (6-15%).

In addition, EVs have adjusted the designof components such as shock springs,
shock absorbers, suspension arms, airconditioning systems, and high voltage
wire sets. With the development of vehicle
systems going electrified and smarter,
the proportion of power batteries, electricmotors and other automotive electroniccomponents in the cost of vehicles has
increased significantly. The proportionof conventional engines, transmissions
and other fuel systems used in vehicles
is gradually decreasing. The differencein the types and selection of components
between conventional vehicles and EVs isshown in Table 2. EVs in comparison toconventional vehicles add controllers,
power batteries, power components
and power conversion modules, etc.
The result is restruc turing of theautomotive and parts industry that hasbrought in a change in manufacturing
and processing. Taiwan has long been
an OEM assembler for automakers, andthe rise of the EV industry will open
up transformation opportunities for
Taiwan's automotive and components
industries.

Hardware & Fastener Components - no.57/2023

Automotive components can be divided
into eight major systems according to theirfunction characteristics: (1) engine (2) engine
peripherals (3) transmission system (4) brakesystem (5) steering system (6) suspension
system (7) vehicle body and tires (8) othercomponents, etc. EVs use electric motors
and power batteries to replace conventional(gasoline or diesel) engines and fuel systems
as the main source of power. EVs do not
use the intake/exhaust system or fuel supply
system of conventional internal combustion
engines and other components, and instead
are controlled by power motors, controllers
and electronic components to start, run,stop, accelerate and decelerate.

123

Industry Focus >>Table 2. Restructuring of EV Components IndustryComponents

Conventional Engines

Hybrid Vehicles(Including Plug-inTypes)

Pure EVs

Intake system (Intake manifold, intake valve, air filter)○○(Required)

×(Not required)

Exhaust system (exhaust manifold, exhaust valve, catalyst andstator, silencer, turbocharger)

○

○

×

Internal combustion engine (cylinder head, cylinder block, piston,piston ring, connecting rod, crankshaft, camshaft, balance shaft,flywheel, etc.)

○

○

×

Transmission/transmission system (automatic transmission,manual transmission/clutch)○○○(Reducer)

Air conditioning system (fan, water tank/sub-tank, cold/hot water
pipes, etc.)○○○(Electric AirConditioning)

Lubrication system, fuel system (oil pump, nozzle, injection pump,etc.)

○

○

×

Integrated start & stop motor○Design change(Light hybrid and above)○×Electric motor

×○(Auxiliary power)○(Main power)

Electric motor controller (Inverter)

×

○

○

DC/DC Converter

×

○

○

Power Conversion Components (Power Devices)

×

○

○

Cable ties (with connector)○(Ordinary ties)○(Mid/high currentties)○

Residual power management

×○(Plug-in PHEV)○

Recharging facilities

×○(PHEV)○

Energy storage (energy recovery) management

×

○

○

Power cells and their management systems

×

○

○

Electric motor and engine (complex power) coupling technology

×○×(High current ties)

Data source: International Strategic Development Institute of Industrial Technology, ITRI (Jan., 2023)

Hardware & Fastener Components - no.57/2023

4. Opportunities for Taiwan's Key EV Component Manufacturers

124

EVs will not only be the mainstream of the future market, but also lead related industries for a new change. Do EVs represent a crisis
or opportunity? The electrification of automobiles has become an irreversible trend, and ICE-powered vehicles are seen as an outdatedtechnology. As the power source of vehicles shifts from fuel to electric power, it is not just the overall system architecture of the vehicle
that is changing. EVs are an innovative industry that combine with IT and bring a variety of manufacturing models, making the EV market
increasingly dynamic.
Compared to internal combustion engine powered vehicles, which use conventional components such as engines and transmissions as thepower system, EVs are powered by batteries, motors and controllers. The market keeps emphasizing the importance of "three-electric system",and for manufacturers originally responsible for a number of automotive components, does it mean the market demand will greatly weakenand cause the market to shrink?
There are three key differences in the structure of fuel-powered vehicles and EVs, including the replacement of engines by motors, thereplacement of fuel tanks by batteries, and the replacement of transmissions by reducers. Looking at power devices which harbor the greatest
distinction, in the past an engine required 1,200 parts. Replacing a conventional engine with a power motor significantly reduces the numberof parts required to 100. The demand for different parts such as cylinder block, piston, crankshaft, exhaust valve and camshaft which arerequired by engines has changed, and the transmission goes simplified due to the absence of engines and intake/exhaust systems.
Although key components such as engines and transmissions are eliminated in electrified vehicles, other components such as gearboxes(gear sets), aluminum alloy wheel rims, light alloy (aluminum alloy) body panels, and components related to the three power sources (powerbatteries, power motors and their controllers) will not disappear. Taiwan's automotive component manufacturers have a strong track record andpotential opportunities, and there are many hidden champions. On the surface, it seems that the popularity of EVs will have an impact andpressure on the automotive parts industry, but the market is not lopsided. Germany is the largest and most robust economy in the European
Union, and the automotive (including EVs) market is very important. The future market will be full of challenges and opportunities.
Article by James Hsiao

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