Can one component support Midea’s “automobile dream” worth 11 billion yuan?
On February 16th, it was reported that the groundbreaking ceremony for a new strategic base for new energy vehicle components, with a total investment of 11 billion yuan from Midea Group, had taken place in Anqing City, Anhui Province.
Fu Yongjun, Vice President of Midea Group, said, "Midea's new energy automotive parts base is one of the largest projects in terms of total investment amount in Midea Group's history."
Midea Automobile is back in the game.
In December 2008, a report titled "Midea's Bus Business Stalled, 'Home Appliance-to-Automobile' Initiative Almost Fails Completely" directly announced the failure of Midea's automobile manufacturing venture.
Having tasted the bitter fruit of failure, Midea withdrew from the automotive industry for 10 years. In 2018, Midea established Weiling Automotive Components Product Company, marking its entry into the automotive industry from a complete vehicle manufacturer to a component supplier.
Speaking of this, there are three issues worth exploring:
Why does Midea plan to establish an automotive parts base?
2. What are the odds for Midea to succeed in manufacturing automotive parts?
3. What are the obstacles to entering the automotive parts industry?
Giant companies are feeling their way
When it comes to Meide's layout of automotive parts bases, Bohu Finance is not surprised at all, after all, it can be considered an OG.
In 2003, a large number of enterprises that had previously been unrelated to the automotive industry began to enter the sector, sparking a "car manufacturing boom" across the manufacturing industry.
Sensing a business opportunity, Midea signed an agreement with the Investment Promotion Bureau of Kunming High-tech Zone to acquire Yunnan Bus, and plans to build a "Yunnan Midea Automobile Industrial City" with vehicle sales exceeding 5 billion yuan.
From 2004 to 2006, Midea Group successively acquired Yunnan Bus Factory, Yunnan Aerospace Shenzhou Automobile Co., Ltd., and Hunan Sanxiang Bus Group Co., Ltd. with a total investment of 1.7 billion yuan. Later, Midea Group established Sanxiang Bus Company, planning to invest 3.5 billion yuan for research and development and production.
In the second half of 2008, Midea Sanxiang Bus ceased production, which lasted only for a short three years. Immediately afterwards, it was taken over by the Changsha Municipal Government of Hunan Province for 108 million yuan.
The other major production base, the Midea Industrial Park in Yunnan, was also shut down in June 2008 and transformed into a modern logistics base.
Due to a misjudgment of the market at that time, the Midea bus project has been operating at a loss. Coupled with the impact of the economic crisis in 2008, Midea's first attempt at manufacturing cars ended in failure.
Before Midea, there was already Chunlan, the "dominator" of China's air conditioning industry, pioneering the way. However, the outcome was not ideal. In 1997, Chunlan ventured into the automotive industry and entered the medium and heavy-duty truck sector. Eleven years later, Chunlan was overwhelmed by its automotive business and sold 60% of its automotive factory's shares.
Since 2001, numerous brands that made their first fortune in the home appliance industry, including Chuangwei, Xinfei, Aux, Midea, and GreenKel, have begun to gather at the "Guangmingding" to compete in technology. However, what followed was a collective decline (except for Chuangwei, which has remained resilient).
From the above, it seems that Midea's foray into the automotive industry is a case of "being frustrated in one's career", but is this really the case?
An analyst in the home appliance industry analyzed:
"Traditional home appliance companies have reached a significant ceiling in terms of both revenue and market capitalization. Against this backdrop, Midea Group has always aspired to shed its label as a home appliance company. In the future, Midea Group will continue to accelerate its expansion into non-home appliance businesses, seeking new profit centers and renewed hope from investors."
In order to boost investor confidence, Midea embarked on diversified development. Its approach involves entering new fields through continuous acquisitions. For instance, Midea, which started with air conditioning, acquired Little Swan to enter the washing machine industry, acquired Germany's Kuka to enter the industrial robotics industry, and acquired Lingwang Elevator to enter the elevator industry.
However, this also raises a question: how will the newly acquired company operate in its new field after the acquisition? Will there be issues with sales channels? Are product prices reasonable? Midea seems to have not thought through these matters.
In 2019, Midea invested a massive 29.2 billion yuan to acquire Kuka Group, the world's second-largest robotics giant, with the intention of transforming into a high-end manufacturing enterprise.
However, the integration process between Kuka and Midea was not smooth. After being acquired, various indicators of Kuka showed a decline, and negative growth began to emerge in the second year. By 2019, Kuka's profit was only 1.14% of the acquisition price.
However, the nearly 30 billion yuan cannot be wasted. Therefore, Midea began to explore how to maximize the value of Kuka. In 2021, Midea spent a staggering 2.297 billion yuan to acquire Wandong Medical, the domestic leader in medical X-ray machines, combining Kuka with the medical industry, but this move was met with market skepticism.
This time, when entering the automotive industry, Midea also intends to combine Kuka with the production of automotive parts.
There are significant reasons behind Midea's eagerness.
In recent years, influenced by the regulation of the real estate industry, the home appliance industry has also been affected to some extent, with its growth rate gradually slowing down.
According to Midea's 2020 financial report, the company achieved a total revenue of RMB 285.7 billion, representing a mere 2.27% year-on-year growth. Midea's overall gross profit margin has also been declining, standing at 25.11% in 2020, a decrease of nearly 4 percentage points from the 28.86% in 2019. Looking at the first three quarters of 2021, the overall gross profit margin has dropped by 3.9%.
Entering the field of new energy vehicle components has become this lifeline.
Huang Hongsheng, the CEO of Chuangwei Automobile, once provided an interpretation:
"If we say that China's home appliance manufacturing industry contributes an output value of over 10 trillion yuan annually, then the new energy vehicle industry will be 10 to 20 times larger, potentially reaching over 100 trillion yuan."
The home appliance manufacturing industry, whose market is nearly saturated, is urgently seeking a new springboard.
What are the chances of Midea prevailing
But can one reach the beauty from this springboard?
In foreign countries, the automotive parts industry has already developed maturely. For example, the well-known giant Bosch has achieved annual revenue of over 40 billion US dollars.
Compared to the complex production processes and low profits in the automotive manufacturing sector, the profits from automotive components are remarkably high. Bosch's profits in 2019 amounted to 3 billion euros, equivalent to 23.7 billion yuan. Great Wall Motor's profits are relatively high in China, yet its profits in 2019 were only 4.5 billion yuan, less than half of Bosch's.
From the perspective of the entire market, resources are highly concentrated among international manufacturers. However, in China, the automotive parts market exhibits low concentration and fierce competition. Most enterprises face issues such as small scale, weak strength, and insufficient research and development capabilities.
But it also means opportunities.
From passenger cars and trucks to new energy vehicles, home appliance brands have been exploring the automotive field for 25 years. However, these pioneering brands have all fallen along the way, and some have even sacrificed their core businesses.
The decision of Midea, which has learned a lesson
