Development Strategy of China's Automotive LED Lighting

　　Incandescent lamps are about to be phased out, energy-saving lamps are at their peak, LED is on the rise. With the gradual development of the domestic automobile industry, LED automotive lighting market is gradually being viewed favorably. So, is the LED automotive lighting market all smooth sailing? Where will the future demand for the automotive lighting market be? What risks will exist when entering the LED automotive lighting field? How should automotive lighting enterprises avoid risks and seek better development?……New Century LED Network specially invited Mr. Jianghu Xinyou (pen name), who previously served at a large domestic automotive front-loading supporting and complete vehicle manufacturing enterprise, and currently holds the position at the largest LED lighting leading enterprise in Asia, as well as a researcher at the China Enterprise Competitiveness Development Research Center and deputy director of the Beijing Hongjing Guoyan Information Technology Research Institute, to interpret the development of the automotive LED lighting industry in China and the market operation strategies of enterprises.

　　Characteristics of Supporting in the Domestic Automotive LED Lighting Market

　　Mainly in-system supporting with benefit-sharing relationships

　　The domestic automotive lamp supply market is an imperfectly competitive market, which is determined by the current development status of China's automobile industry; in joint-venture vehicle enterprises, the procurement decision-making power for automobile-related parts and components is mostly held by the foreign party. It is quite difficult to enter the supply industry chain of these joint-venture enterprises, and it requires technical and quality certification from the foreign parent company of the joint-venture party. Most of the vehicle models introduced into China are relatively mature models in the international market, and these models already have relatively fixed supporting manufacturers abroad. After the models are introduced and produced domestically, the related automobile parts and components production is mostly provided by the joint ventures or wholly foreign-owned enterprises established in China by the original foreign supporting enterprises. Especially with the joint-venture vehicle enterprises with Japan and Korea, the protection of the original supporting relationships is very tight, and it is difficult for domestic enterprises to enter their supporting relationships. Domestic automotive lamp joint ventures or wholly foreign-owned enterprises possess relatively advanced technology and equipment, and mainly carry out supporting production for domestic joint-venture vehicle enterprises. Joint-venture automotive lamp enterprises have introduced advanced foreign automotive lamp technology into China, which has also promoted domestic traditional automotive lamp enterprises to learn from advanced foreign technology in order to improve the technical level of their own products and promote the overall technical level of domestic automotive lamp products.

　　The supply of the domestic automotive lamp market has the following characteristics:

　　1) Intra-system supply:

　　The supply of automotive lamp products is mainly carried out through intra-system supply with shared-interest relationships. For example, the automotive lamp products of Guangzhou Honda are produced by Guangzhou Stanley Electric Co., Ltd.; the automotive lamp products of Beijing Hyundai are produced by Beijing Hyundai SANLI Automotive Lamp Co., Ltd. The Sino-German joint venture under Beijing Automotive Group—Beijing Hella Automotive Lamp Co., Ltd.—is unable to enter the product supply chain of Beijing Hyundai. The automotive lamp products of Dongfeng Yueda Kia are produced by the automotive lamp factory of Jiangsu Mobis Automotive Parts Co., Ltd. Shanghai Volkswagen and Shanghai GM are supplied by Shanghai Koito Automotive Lamp Co., Ltd., a joint venture jointly established by SAIC Group and Japan's Koito.

　　2) The supply market of passenger-car joint-venture enterprises is basically monopolized by joint-venture automotive lamp enterprises:

　　The automotive lighting supply markets of joint ventures such as Shanghai GM, Shanghai Volkswagen, Guangzhou Honda, Beijing Hyundai, and Zhengzhou Nissan are all monopolized by Sino-foreign joint venture lighting enterprises. On the one hand, this is due to the in-system supply reasons mentioned above; on the other hand, it also reflects the lag in technical level and the insufficient competitiveness of domestic non-joint-venture lighting enterprises.

　　3) One vehicle manufacturer is supplied by multiple lighting enterprises:

　　Among domestic traditional vehicle manufacturers, or joint venture vehicle manufacturers where the foreign party does not have significant influence, most adopt the model of purchasing from multiple lighting enterprises. Chery Automobile, Geely Automobile, Anhui JAC, BAIC Foton, etc. are all supplied by multiple lighting enterprises.

　　4) Private lighting enterprises mainly compete in the lighting retail market and the product export market:

　　Private lighting enterprises, with their flexible market mechanisms and low-cost advantages, compete in the lighting retail market with low product prices. Private enterprises that have grown and developed also participate in the supply market competition of vehicle manufacturers, and Changzhou Xingyu Automotive Lighting System Co., Ltd. is one of the representatives of private enterprises.

　　Product supply is mainly carried out within systems with shared interest relationships. For example, the car lamp products of Guangzhou Honda are produced by Guangzhou Stanley Electric Co., Ltd.; the car lamp products of Beijing Hyundai are produced by Beijing Hyundai Sanli Car Lamp Co., Ltd. Beijing Hella Car Lamp Co., Ltd., which also belongs to Beijing Automotive Group, is unable to enter Beijing Hyundai's product supply chain. The car lamp products of Dongfeng Yueda Kia are produced by the car lamp factory of Jiangsu Mobis Auto Parts Co., Ltd. Shanghai Volkswagen and Shanghai GM are supplied by Shanghai Koito Car Lamp Co., Ltd., a joint venture between SAIC Group and Japanese Koito. The supply market of sedan joint ventures is basically monopolized by joint-venture car lamp companies. With the increase in car ownership, non-automotive parts companies that provide car lamps, such as Philips and Osram, have also developed in the aftermarket.

　　Summary

　　Microcars, low-end sedans, medium trucks, and pickup trucks have few model series, with high market sales volume and saturation. Coupled with the national policy on automobiles to the countryside and adjustments to purchase tax, passenger car sales increased by 53% throughout the year, and commercial vehicles significantly exceeded expectations, with year-on-year growth of 28.4% in 2009, far higher than the level of the previous six years.

　　The sales growth of microcars, low-end sedans, and pickup trucks is also outstanding. Therefore, lamps for microcars, low-end sedans, and pickup trucks will be the main market, marking the beginning and a key supporting project for enterprises to enter the OEM supply market. Not only is there large demand for OEM supply, but the aftermarket capacity is also considerable.

　　Big Market, but Hard to Capture in the Short Term

　　In the automotive LED field, there are currently no enterprises in China specializing in production, with only a few optoelectronic industry bases conducting research in this area.

　　1) The bottlenecks in the development of China's domestic automotive LED market mainly come from the following three aspects:

　　First, the production cost of LED car lights is too high. Currently, the main production area of LED chips is Taiwan, China, which holds 47% of the LED market. However, most LED factories in mainland China only perform resin packaging processing, and chips need to be imported in large quantities, which is the main reason for high costs.

　　Secondly, due to the limited number of independent brand sedans in China, which are mainly low-to-mid range cars, the demand for LEDs is very limited. However, foreign brand models that occupy the main market share of domestic sedans have very strict requirements for the selection and certification of LED suppliers, making it difficult for domestic LED companies to enter their supply chains. But with the rise of private enterprise sedans with independent intellectual property rights, launching ten to twenty or even more new models each year, and because automotive lighting updates rapidly, joint ventures are under competitive pressure and gradually increase their intention to adopt LED lights as market selling points and to locally source LEDs to reduce costs. This will be a development opportunity for domestic LED companies.

　　Thirdly, domestic LEDs are mainly low-to-mid range LED products, making it difficult to meet automotive LED standards. Only by making breakthroughs in product patent technology can they possibly gain a foothold in the LED-related application market.

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　　2) The automotive lighting market has great potential, but it will be difficult to launch in the domestic market in the short term.

　　The application of LEDs as automotive lights mainly benefits from their low power consumption, long lifespan, and fast response characteristics. Statistics show that when a vehicle is traveling at a speed of 100 km/h, a vehicle equipped with LED brake lights will have a braking distance reduced by 7 feet compared to a vehicle without LED brake lights. Currently, LEDs have gradually been applied to the third brake light of vehicles. Although LEDs still face limitations such as low lumens per watt and regulatory restrictions, and it will take some time before they enter the automotive tail light and headlight markets, with the decrease in cost-performance ratio and the improvement in luminous efficiency, LEDs will eventually realize a transition from the interior and rear of the vehicle to the front, ultimately occupying the entire automotive lighting market. With the enormous production capacity of automobiles, the LED automotive lighting market faces tremendous development potential.

　　LED headlamps are developing synchronously with HID xenon headlamps

　　The future market demand for automotive lighting products will present the following characteristics:

　　1) Intense price competition: Due to the decline in prices in the overall vehicle market, it is inevitable that the prices of components such as automotive lights will also decrease. Providing cost-effective automotive lighting products will be the general trend. Especially in the supporting markets for domestic trucks, lorries, and mid-to-low-end sedans, price competition will be quite fierce.

　　2) Aesthetic and personalized product design: With fierce competition in the vehicle market, lamp design will increasingly become one of the highlights of vehicle design, which requires lamp design to be more aesthetically pleasing and personalized to attract customers.

　　3) Higher configuration of domestic brand vehicles: As the living standards of people in the country improve, the requirements for overall vehicle performance are increasing. For domestic brand vehicles to compete with joint venture cars, competing only with low configuration and low prices will be difficult to achieve better results. More and more domestic brand vehicles will choose to improve vehicle configuration to participate in the competition.

　　4) Gradual popularization of LED car lamps: With the maturity of LED technology and the decrease in product prices, LED combination tail lights, LED brake lights, LED turn signals, LED fog lights, etc. will become increasingly common in sedan configurations.

　　5) Universalization of HID xenon headlamps in mid- and high-end vehicles: As people recognize the advantages of HID xenon lamps, and the prices of HID lamp products continue to decrease, more and more vehicles will be configured with HID xenon headlamps, especially mid- and high-end sedans and luxury buses.

　　Summary:

　　1) It is not far off for domestic lamp enterprises to participate in international market competition. It is difficult for China-made lamp products to enter the international high-end supporting market. The reason is that China's lamp product technology is not advanced enough to enter the high-end market. In addition, the matching of lamp products is mainly carried out within systems that have benefit-sharing relationships.

　　In addition to the above issues, the development of the domestic LED automotive lamp market is also plagued by other problems. Since domestic automobile manufacturers are mainly foreign-funded enterprises, the vehicle models produced are mainly domestic improved versions of foreign automobile models. This directly leads to the original vehicle design concept and the core technology of vehicle system integration being in the hands of foreign-funded manufacturers. And since automotive design is a coherent whole, a change in every link will affect a change in the electrical design of the entire vehicle.

　　Currently, domestic automobiles are mainly low-end vehicles, and the models are also relatively mature foreign models. These models appeared so early that LED was not considered in the initial design. Due to the lack of overall core technology support from domestic manufacturers, it is difficult for manufacturers to directly change the design of automotive lamps, which affects the development of the domestic automotive lamp market.

　　2) Whether LED lamps can expand the market in the short term depends not only on automobile manufacturers and lamp manufacturers, but most importantly on the progress of the LED technology itself. Only when LED reaches a certain level technologically can lamp enterprises produce lamps truly suitable for mass production, automobile manufacturers will adopt lamps that meet demand, and the LED lamp market can truly be activated.

　　Judging from the current development of the lamp market, LED is developing rapidly, and the performance of halogen lamps and HID lamps is also constantly being improved. Therefore, it is difficult for one lamp to dominate in the short term, and it should still be a situation where halogen lamps, HID lamps, and LED lamps share the world. Since the LED light source has many advantages that can meet people's requirements for automobile safety, comfort, luxury, energy saving, environmental protection, and multi-function, improving the grade of the automobile and enhancing its market competitiveness. Therefore, with the development of LED technology, the price barrier of LED lamps will gradually decrease, and LED will definitely enter the automotive application field on a large scale, especially in the application of headlights. Therefore, HID headlights will develop in sync with LED headlights in the next few years.

3) Overall, the LED conversion of automotive lighting represents a very broad market. Currently, some high-end cars in the United States, Japan, and Europe have begun to partially use semiconductor lighting. However, due to the high entry barriers in the automotive field, LED automotive lights have not yet widely entered the domestic market in China. It is believed that with the continuous development of the domestic automotive industry, LED automotive lights will be widely applied in the domestic automotive market in the coming years.

Greater development opportunities for companies in the aftermarket

The main markets for automotive LED lighting are divided into the OEM market and the aftermarket.

The OEM market refers to the market for electronic products that are installed when the vehicle leaves the factory, with customers being the supporting enterprises of vehicle manufacturers. Once a company enters the OEM market, it means for electronic product distributors to obtain a very stable market with fully guaranteed sales. The aftermarket, however, is different from the OEM market—it is a perfectly competitive market. Due to numerous parts sources, difficulties in identification, and consumers lacking corresponding professional knowledge, in addition to the 4S store channel model, the end markets of other models also see sellers unwilling to provide high-quality products because of excessively low prices, resulting in low-quality products flooding the market, high-quality products being driven out, and ultimately leading to a vicious cycle and eventual shrinkage of the market.

Advantages of the OEM market:

　　1) Compared with the aftermarket, there are fewer varieties, but each batch has a larger quantity.

　　2) The technical difficulty is higher than that of the aftermarket. Due to direct control and involvement by the OEM, technical requirements will be far higher than those of the aftermarket.

　　3) Logistically, timely and continuous supply must be absolutely guaranteed; the OEM must never be caused to halt production as a result; the ideal situation is to set up warehousing around the vehicle manufacturer's facility.

　　4) Service requirements are higher, such as possibly involving recalls, etc. In addition, if the supplied vehicle model has been discontinued, parts supply generally needs to be guaranteed for more than ten years.

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　　5) The order flow in the OEM market is stable, product profit margins are high, and it is easy to build a brand, but the barriers to entry are high and requirements are demanding, etc.

Currently, the automotive LED lighting market in the OEM sector remains untapped by domestic LED lamp companies, with competition primarily concentrated in the aftermarket. The OEM market is entirely monopolized by several major foreign brands. For domestic companies, opportunities in the aftermarket are greater and easier to seize than those in the OEM market, as they avoid direct competition with international brands. Through this preliminary understanding, more LED light source companies and LED luminaire companies are channeling greater efforts into the aftermarket to improve their viability and minimize the impact on their businesses. They are gradually building their own brands and marketing networks, opening up domestic and overseas sales channels, in order to meet the demands of market development.

Numerous risks—developing OEM配套 requires partnering with vehicle manufacturers

The main concerns are:

1) Insufficient understanding of international standards systems, lack of familiarity with European, American, and Japanese standards systems, and shortcomings in corporate development and production standards systems.

2) The business model for project cooperation based on vehicle LED lighting product configuration requirements has not been fully established ("Automotive Protocol").

　　3) Due to the lack of demand pull from vehicle manufacturers, companies have to independently develop functional prototypes of their products before sending them to vehicle manufacturers for testing. Only after passing the tests can they seek supporting parts suppliers.

　　4) The configuration of laboratory equipment is imperfect. Due to the high frequency and cost of testing vehicle-mounted products, it is difficult for the products to meet vehicle manufacturer standards in terms of stability and safety within a short period of time.

　　5) LED vehicle lamp products are highly correlated with vehicle matching. Companies have not yet reached a sufficient scale, making it difficult to enter the supporting business model in a short period of time, and therefore are easily controlled by vehicle manufacturers.

　　6) Conducting R&D under the development architecture system of vehicle enterprises, there is a lack of experience in matching vehicle requirements. The company currently has no experience or track record in this area. Which vehicle manufacturer will be the breakthrough point?

　　7) During the R&D process, domestic supporting manufacturers of LED vehicle lamp product components are controlled by joint ventures, resulting in an unsound LED vehicle lamp supporting market, which also has a certain negative impact on the development of domestic LED vehicle lamp R&D enterprises. There are common problems such as long procurement cycles, inconvenient purchasing, and specifications that do not meet automotive-specific requirements. "LED vehicle headlamps are regulated parts, requiring large investment, high standards, and mandatory inspection," which places high demands on the supporting reflectors and light sources of the lamps, leading to supporting difficulties in this area.

　　8) Due to the reasons of fewer testing times and high costs, the test time the product undergoes is relatively short, making it difficult to meet international standard requirements in terms of stability and safety.

　　9) Lacks the advantages of a complete development platform (software and hardware environment), standardized development management process, testing equipment and means within the development system.

　　10) The development system is incomplete, technical strength is weak, and it is difficult to find professional technical and market personnel with years of work experience and car factory matching experience in the LED car lights industry.

　　11) For first- and second-tier car factories, the high-threshold matching entry conditions make it very difficult for us to obtain opportunities to match with vehicle enterprises. It is also difficult to accumulate experience through the application of products on automobiles to improve technical levels. As a result, we have no choice but to lock onto third/fourth-tier car factories, car sales companies, and car design companies for matching, which correspondingly reduces product profits and does little to enhance enterprise competitiveness.

　　12) Road lighting and automobile lighting are two different industries; the operations involved are completely different and cannot be confused. The requirements of the automobile lighting industry are significantly higher than those of the road lighting industry. Currently, it is learned that the R&D team being assembled still cannot meet the synchronous development requirements of vehicle enterprises and the product competitiveness requirements.

　　13) In terms of the company's scale in the market, professional technology, management personnel, capital investment, product serialization, quality, etc., compared with others that can provide front-end assembly.

　　14) At present, there is still a large gap with foreign or joint-venture supporting enterprises, lacking competitiveness.

　　15) The enterprise's strategic goals, capital investment, organizational structure construction, utilization of market resources, product positioning, long-term planning, etc. need to be clarified by the company's senior management; otherwise, it will be impossible to determine which path to choose to promote the company's LED car light project.

　　16) The industry standard system has not yet been established; the aftermarket is chaotic, with no regulations and inconsistent standards; there is too little mastery of core technology and chip technology (cost too high); infrastructure is incomplete; there is no information service system; technical manufacturing, R&D capabilities, management level, marketing channels, etc. are not yet planned. In the industry chain, the company's supporting suppliers will still face a backward situation, and internal and external factors such as poor market operation capabilities leading to products lacking market competitiveness have become constraints on the development of the company's LED car light project.

　　Summary:

　　In summary, the development of domestic automotive LED lighting companies must be supported by vehicle manufacturers. The planning, design, and development of automotive LED lighting products must be carried out within the development framework system of vehicle manufacturers. Only through product development can a development management system, technical team, and market-competitive products that meet the development requirements of vehicle manufacturers be formed, gradually strengthening their own team.

　　To obtain high profits in the automotive LED lighting industry and pursue becoming a global high-tech enterprise as a strategic goal, it is necessary to meet the requirements of OEM systems, technology, test standards, and supporting experience in order to monopolize the domestic automotive LED lighting front-end supporting market and aftermarket supporting market.

　　Integrate resources, leverage external capabilities, provide one-stop LED car light solutions

　　1) Enterprises should concentrate resources in the short to medium term on the focused development of LED car lights, then integrate applications and integration projects in the LED car light field. With providing one-stop LED car light solutions as the development goal, and product and technical consulting and training as effective channels, gradually establish a strong position.

　　2) Avoid the management pitfalls of the big market, do a good job on car light supporting projects in the small market, and carefully carry out the R&D, production, and sales work of LED car light projects.

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　　3) Positioning ourselves as a provider of professional products + professional services, we persist in selecting services with sustainable development potential, high industry growth, and excellent credit standing as our core business; selecting products that meet industry demands and align with international development trends as our key products; and committing to creating outstanding products that are difficult for peers to imitate.

　　4) Relying on years of mature experience in the LED lighting industry, we build a product system structure and an operational management system structure with "short-to-medium-term focus and long-term reserves".

　　5) LED automotive lighting development positioning: The top priority for future development, the company channels resources toward research and development every year. The specific strategic directions for implementation are, in my view, as follows:

　　a. Combining "market demand orientation" with "guiding user needs" can become the company's R&D direction.

　　b. Innovation is always the characteristic and advantage pursued by new thinking; we encourage innovation in technology and creativity in products.

c. Real-time tracking and research of foreign technology development information, to grasp domestic technology development trends in advance.

(4) The technical starting point should be high, with close market coordination, avoiding starting from scratch, avoiding complex and ineffective scientific exploration, investing limited resources in directions that can produce unlimited benefits, and being adept at "borrowing ships to go to sea."

(5) Fully utilize external technical resources, value leveraging momentum, leverage complementary advantages, shorten R&D cycles as much as possible, and improve product quality as much as possible.

Develop key regions and key customers, use points to drive the whole, and achieve large-scale market effects

The company should regard the marketing system as a means of enterprise development. The standards for evaluating market sales performance consist of five factors: sales volume, profit margin, market share, new user acquisition rate, new product achievement rate, and brand influence.

　　1) Not pursuing a large and comprehensive marketing network structure, but advocating a marketing network building method that selects key regions and key customer groups, expanding from points to broader areas.

　　2) Gradually transitioning from a parallel market-and-sales model to a marketing model where the market leads and sales follow.

　　3) Pursuing major market effects, valuing public relations with major institutions and large groups, striving to obtain recommendations and recognition from these important institutions.

　　4) Increasing year by year the publicity efforts for the company and its products, in order to accumulate the enterprise's social influence.

　　5) The company values the long-term building of the marketing team, motivating and driving marketing personnel through a shared mission, responsibility, and achievements.

　　Plan before acting; never fight an unprepared battle

　　I believe that domestic enterprises wishing to enter the automotive LED lighting industry should consider the following points:

　　1) Transition:

　　(1) Automotive lighting projects should transition from third/fourth-tier car manufacturers (small and medium-sized vehicle makers) to first/second-tier car manufacturers (medium, large, and extra-large vehicle makers).

　　(2) Transition from domestic vehicle manufacturers to joint-venture vehicle manufacturers, which impose higher requirements, present greater difficulty, and have higher entry barriers.

　　(3) Transitioning from low-end vehicles to mid-to-high-end vehicles.

　　(4) Transitioning from imitation to independent R&D.

　　(5) Expanding from a single product to multiple products, from one vehicle manufacturer to all domestic vehicle manufacturers, and transitioning from a very low market share to the planned market share within a short period of time.

　　(6) Transitioning from a single commercial supporting model to a diversified commercial supporting model.

　　2) Acquisition/Holding:

Select a company that is underperforming, in urgent need of financing, and has been providing headlamp matching services to OEMs for many years, in order to vertically integrate the industrial chain and enter the market by "borrowing a ship to set sail."

3) Improvement:

(1) Requirements for international standard systems; familiarity with the standards of European, American, Japanese and other systems, as well as corporate development and production standard systems.

(2) The business model of carrying out project cooperation based on the configuration requirements of vehicle electronic products has not been fully established ("Automotive Agreement").

(3) Through financing and establishing cooperation, enable the enterprise to scale up and enter the supporting business model as early as possible, breaking free from the control of vehicle manufacturers.

　　(4) Build an experienced and combat-ready technical and marketing industry team to optimize the supporting experience and model for vehicle manufacturers.

　　(5) Improve product serialization, ensure product quality, and reduce the gap with other supporting enterprises.

　　(6) Establish, strengthen and improve market segmentation and product planning for vehicle factory projects.

　　(7) Gradually establish branch offices and representative offices in various regions, improve the marketing network, system and enterprise marketing team, provide fast and efficient local services to customer groups, provide technical support for future new product matching, and meet market-oriented requirements.

　　(8) Establish extensive cooperative relationships with domestic vehicle enterprises and automobile design companies, obtain active support and cooperation from vehicle enterprises in new products and other aspects, and jointly build the product supply chain of the automobile industry.

(9) Improve capital investment budget, plan and allocate funds reasonably.

4) Operations:

Choose third- and fourth-tier domestic vehicle manufacturers with large sales volumes of micro-cars, low-end sedans and pickup trucks for lighting accessories. Risks are low, entry barriers are minimal, and it is easy to enter the "Automotive Agreement" supply system, consolidate the market, and lay the foundation and prepare for entering first- and second-tier vehicle manufacturers.

5) Planning:

Planning focuses on: overall corporate strategic goal planning, product roadmap planning, brand strategy planning, market strategy planning, scientific research and innovation planning, human resource planning, commercial channel and operation model planning, etc.

(Editor: zhouboone)