Disintegration, Core Competency, and Industry Structure: Chinese Auto OEMs in Electrification and Digitalization

Publication Type:

Conference Paper

Source:

Gerpisa colloquium (2024)

Abstract:

The article examines the development of production networks in the new energy vehicle (NEV-) industry in China. During the recent decade China has become the world’s largest producer and market for NEV. The industry has developed a complete infrastructure of production and development of electric cars and their key components. In 2022, Chinese car makers for the first time overtook multinational car companies’ overall market share in China on the back of rapid growth of NEV sales volumes. Today, the restructuring of the global automotive industry is driven by new players from China and other emerging economies, rather than the incumbent car makers in the U.S., Europe and East Asia.

China’s remarkable success entails a break with the traditional organization of car production (under joint ventures between Chinese state-owned enterprises and foreign corporations) and the emergence of new models of vertically disintegrated mass production. Specialized producers with global reach have developed in core sectors of the NEV industry, as demonstrated by the phenomenal growth of Chinese makers of NEV batteries. In our view, this development is part of an emerging historic rupture in the production models of the car industry, comparable to the break-up of Fordist and post-Fordist models of vertical integration in the IT industry during the 1990s (Luethje 2019, 2021, 2022). The global economic crisis and tensions resulting from the Covid-19 pandemic and the increasing geopolitical confrontation with China put forward by the U.S. and some other Western nations have been a catalyst of this development and the underlying complex processes of vertical disintegration and reintegration of production networks.

The article will examine these trends in China with regard to key sectors of NEV production and discuss the case of Lithium batteries in more detail. We propose that vertical de- and re-integration is advancing rapidly and vertically specialized mass production has been consolidated in some key sectors, mainly batteries. It has enabled Chinese players to occupy key elements of emerging value chains and to become global players, creating new alliances and massive competition with leading car makers. However, it is by far not clear which strategy of vertical de- and re-integration will finally be successful. The present development may not result in a full-scale disintegration into horizontal industry segments, as in the IT industry. Rather, loosely structured strategic alliances between major players of different industry seem to be the dominant form of vertically specialized production networks for the foreseeable future.

The article will review these trends in four steps. In the first section, we will briefly summarize the overall trends of vertical de- and reintegration, focusing on new Chinese NEV companies, developers of autonomous driving, telecommunication producers, car suppliers, electronics contract manufacturers, automotive semiconductors. The second section will take a more detailed look at the main growth and business competition strategic choices of old and new Chinese NEV makers (OEMs). The third section will discuss the impacts of strategic behavior of OEM on their core competencies. The fourth section will make some preliminary predictions on the future industry structure both in electrification and digitalization sectors, based on our assessment of core competencies of OEMs.

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