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Sector Update Summary - Automotive Industry (2017.10.17)

Core Content

This report provides an analysis of the automotive industry, focusing on the impact of technological changes and strategic moves by major players. It highlights the evolving landscape as traditional automakers adapt to the integration of IT and the rise of new business models in electric vehicles (EVs), autonomous driving, connectivity, and car-sharing services.

Main Points

1. Market Performance and Trends

• Tesla: Shares stalled with only an 8.6% increase over three months due to production delays and workforce reductions. The Model 3 faced challenges in assembly due to the use of a steel/aluminum blend and was initially assembled by hand at a slow rate.
• GM: Shares surged 26.2% over three months, attributed to its proactive restructuring and recovery in auto demand following natural disasters. GM is shifting focus to EVs and autonomous driving, with investments in Lyft and the acquisition of Cruise Automation.
• Korean Firms: Hanon Systems and Mando are noted for their strategic moves in forming joint ventures (JVs) with Chinese automakers. Woory Industrial is also diversifying into sensor modules and reducing reliance on Tesla.

2. Technological Changes and Industry Impact

• EVs: The demand for traditional powertrain vehicles is declining as EVs gain popularity. Companies like Tesla, BYD, and Geely are leading this shift.
• Autonomous Driving: Hardware value is decreasing as buyers prioritize IoT platforms (cloud and AI). Nvidia's platform is expected to benefit from this trend.
• Connectivity: Increasing EV and autonomous vehicle adoption will drive growth in vehicle connectivity, linking navigation systems with smartphones.
• Car-Sharing: The model is shifting from ownership to usage-based models, reducing demand for first and second cars.

3. Strategic Moves by Automakers

• GM:
  • Renamed powertrain division to "propulsion system division."
  • Launched Bolt EV with a 230-mile range.
  • Acquired Cruise Automation and invested in Lyft.
• Hyundai Motor (HMC)/Kia:
  • Plans to launch 31 xEV models by 2020.
  • Invests in AI and AR software firms.
  • Launched car-sharing service Deal Car.
• Ford:
  • Aims to increase green car sales to 40% by 2020.
  • Launched EV-only JV with Zotye.
  • Acquired Lidar, AI, and cloud players.
• Daimler:
  • Invested in battery production and launched EV line EQ.
  • Formed alliance with Bosch for level 5 autonomous driving.
• Volkswagen (VW):
  • Introduced EV concept vehicle I.D.
  • Plans to launch over 30 EVs by 2025.

4. China's Role in the Ecosystem

• China is central to the development of the EV value chain, with the Apollo 1.5 project involving major automakers, parts makers, and tech firms.
• Korean firms must localize and form JVs with Chinese partners to gain market access and benefit from the NEV credit program.

5. Target Prices and Investment Rulings

• Hanon Systems: Target price KRW14,000 (12.4% increase). The firm is seen as a key player in the EV value chain.
• Mando: Target price KRW310,000 (14.4% increase). Already has a JV with Geely and is expected to benefit from the evolving ecosystem.
• Woory Industrial: Target price KRW37,000 (13.5% increase). Diversifying into sensor modules and reducing dependency on Tesla.

Key Information

• Korean automakers and parts makers must form JVs and strategic investments to remain competitive in the global EV and IT-driven market.
• The convergence of auto and IT is reshaping the industry, with a shift from traditional manufacturing to integrated tech solutions.
• Governments are pushing for localized value chains, especially in EVs, which presents both challenges and opportunities for Korean firms.
• Despite the challenges, traditional automakers are leveraging their established positions to counter IT innovators by acquiring technologies and forming alliances.

Summary Table

Conclusion

The automotive industry is undergoing significant transformation due to the integration of IT and the rise of EVs, autonomous driving, and connectivity. Korean firms are advised to form strategic partnerships and JVs with Chinese players to secure their position in the evolving market. While Tesla faces challenges in scaling production, GM and other traditional automakers are leveraging restructuring and innovation to stay ahead. The future of the industry will depend on the ability of firms to adapt and participate in the new ecosystem.