Half of 2019 has passed, and against the backdrop of complex and ever-changing economic conditions, the user sectors of the machine tool industry, such as automobiles and 3C electronic consumer markets, have continued to decline, while the construction machinery and other markets have generally declined after rapid growth. Especially in the automotive industry, the main user area of the machine tool and tool industry, the sluggish market performance continues to this day after the first decline in the second half of 2018, and there is still a possibility of worsening. So, facing the continuous decline of the main user market in the industry, what is the operating situation of the machine tool industry enterprises in the first half of the year? What new changes have occurred in the industry? How can companies respond? What are the new highlights? The Media Department of the China Machine Tool Industry Association conducted interviews with several enterprises, including state-owned, private, and foreign-funded enterprises, with the automotive industry as their main user market, through visits, phone calls, and written invitations to address the above-mentioned issues. They summarized the operational characteristics and proposed business strategies of industry enterprises facing the automotive market situation in the first half of 2019, and communicated and shared with industry colleagues.

Insufficient new orders in the automotive user market, weak growth in the high-end market

Among the companies we interviewed, especially those with a relatively high proportion in the automotive market, there was a significant decline in the first half of 2019 compared to the same period last year. Compared to previous years, there are still several prominent issues:

1、 Due to the influence of traditional holidays, February has always been a low point for the whole year, but the increase in March is relatively weak compared to previous years. Due to product delivery cycles (usually three months of ordering), this situation directly affects production and sales in the second quarter. 

2、 The market performance continued to be sluggish from April to June, with some companies placing orders that could only meet the current production capacity, while others have already experienced insufficient production and are unable to provide effective orders for the third quarter. Coupled with production cycle factors, this not only indicates a weakening trend in the third quarter, but also makes it very difficult to achieve delivery in the same year even if orders are placed in the third quarter.

3、 Some users have repeatedly delayed or even cancelled their orders, exacerbating product inventory backlog and capital occupation.

A pessimistic signal is that in the first half of 2019, there was a serious decline in new orders for enterprises. However, due to the continued effect of the previous market recovery, there were more orders carried forward by enterprises in the first half of 2018. Some companies even stated that the orders carried forward in the previous year this year were the highest in a decade. However, due to the delayed improvement of new orders and the completion of orders carried forward from the previous year, the downward pressure on enterprises has continued to increase. This rapid downward trend in the user market has caught enterprises off guard.

According to Zeng Lufang, Marketing Director of Chongqing Machine Tool (Group) Co., Ltd., although the company has received some new orders in other fields such as commercial vehicles, engineering machinery, mining machinery, petroleum machinery, etc., the automotive industry accounts for at least 60% of the company's product demand, especially the passenger car industry, where the demand for gear processing machine tools dominates. The decline in this market cannot be compensated by any other industry. Yichang Changji, also a gear machine tool manufacturer, stated that orders from the domestic automotive industry also declined in the first half of 2019. However, due to the fact that the automotive market only accounts for 20% of its market share, the overall impact is relatively small.

How are foreign-funded enterprises affected compared to state-owned and private enterprises? Glauber Machine Tool (China) Co., Ltd. is a typical foreign-funded enterprise with the automotive industry as its main user market. In the field of automotive parts manufacturing, especially traditional powertrain, Glauber China holds 75% of the market share, and almost all internationally renowned automotive companies are its customers. The decline in the automotive market has a significant impact on Graber China. According to Ren Hongzhi, General Manager of Glauber China, "In the first half of this year, the number of new orders for equipment procurement from the automotive industry in Glauber China decreased relatively, mostly carried over from last year. The main new orders for the automotive industry in the first half of this year were for the renovation of existing equipment, and the company achieved a stock renovation of 300 million yuan in the first half of this year

Looking at the data of Tsutsu Precision Machine Tool (China) Co., Ltd., a Japanese machine tool company listed in Hong Kong. The main products of Jinshang Machine Tool in China are precision automatic lathes, precision turret lathes, precision machining centers, precision grinding machines, and precision wire rolling machines, covering industries such as IT and electronic products, automobiles, and medical equipment. As of March 31, 2019, the annual performance announcement showed that the company's revenue during the announcement period was RMB 2.851 billion, a year-on-year increase of 23.19%; The gross profit was 713 million yuan, a year-on-year increase of 50.98%; But by the middle of the year, Tsutsu Machine Tool (China) announced that its controlling shareholder, Japan Tsutsu, had achieved a profit of 1.229 billion yen in the Chinese segment for the three months ended June 30, a year-on-year decrease of 51.6%. In the application field of CNC high-precision machine tools in China, the automotive industry is the most widely used industry, with the consumer electronics industry accounting for the second place. The continuous downturn in the automotive and consumer electronics markets has led to a decrease in demand for the leading product CNC high-precision machine tools in China, as shown in the company's second quarter data report.

The continuous downturn in the Chinese automotive market has had a wide range of impacts, with almost all machine tool and tool enterprises, from foreign-funded enterprises to state-owned and private enterprises, being significantly affected. It is worth paying attention to how the future trend will be.

Still optimistic about the Chinese market seizing the new energy vehicle user field

Despite the sluggish market, foreign enterprises are still optimistic about the Chinese market and are still investing in expanding production.

On June 25, 2019, German Elsevier Machine Tool (SW) Co., Ltd. held an opening ceremony in Yongchuan, Chongqing, officially announcing the establishment of SW Chongqing Company. Chongqing is one of the most dynamic provinces and cities in recent years in terms of economic development, with a large number of automobile parts and mechanical processing enterprises gathering in the region. Mr. Norbert Wiest, General Manager of SW Suzhou and SW Chongqing, said, "Although there has been a brief downturn and decline in the Chinese automotive market, globally, compared to the saturated market capacity in Europe, we believe that the Chinese automotive market still has great potential

In 2018, Tianjin Machine Tool (China) revealed that it would establish a wholly-owned subsidiary in Bowang District, Ma'anshan City, Anhui Province, China, and establish a new factory in Bowang District, Ma'anshan City. On August 1, 2019, the company issued a notice stating that Tianjin China had signed two construction agreements for the Anhui factory, involving a total investment of 178 million yuan. The construction related to the Anhui factory is expected to be completed and put into production by 2021. It is reported that although the group is aware that the Chinese manufacturing industry has had an impact on the current market demand for CNC high-precision machine tools due to changes in the international situation and multiple macroeconomic uncertainties, there has been no change in the group's assessment of the medium to long-term development of the Chinese machine tool manufacturing industry, that is, the Chinese market maintains a high potential demand for CNC high-precision machine tools.

Compared to the weakness of the traditional automobile market, the new energy vehicle industry is in a period of running horses and seizing territory. Previously, the monthly sales of new energy vehicles had repeatedly reached new highs, and the construction of new production lines had led to a large influx of capital to purchase manufacturing equipment. Foreign companies were clearly optimistic about this cake, using their strong technological capabilities to seize the new energy vehicle market.

Ren Hongzhi, General Manager of Glauber China, believes that although the traditional automotive market may not see significant improvement in the short term, the power driven transformation of the automotive industry will bring new opportunities to the industry. The third phase expansion project of Graub China's Dalian production base was launched in May 2018 and completed in May 2019. The third phase expansion project has significantly expanded Graub's product range and production flexibility, and gradually expanded into the field of electric vehicles. Ren Hongzhi stated that in the context of the transformation of China's automotive power drive market, Glauber has made sufficient preparations in terms of technology, talent, infrastructure, and is confident in welcoming the transformation of the automotive industry. Mr. Norbert Wiest, General Manager of SW Suzhou and SW Chongqing, also stated that "the rapidly developing field of new energy vehicles is a direction that SW attaches great importance to and continuously strives for

Both state-owned and private enterprises are also making every effort to enter this field. When introducing the situation of Chongqing Machine Tool, Zeng Lufang, the marketing director of Chongqing Machine Tool, stated that, In terms of passenger vehicles, considering cost control and price competition, some new energy vehicle transmission systems and domestic automatic transmission companies have increased production capacity, bringing some opportunities to domestic high-end machine tools. However, the total amount is limited, and the requirements for machine tools are very high. Domestic enterprises only have the opportunity to share a share of the market share of imported machine tools when meeting user requirements Anhui Licheng Intelligent Equipment Co., Ltd., a modular machine tool enterprise, mainly focuses on the automotive and motorcycle parts industries. The company's relevant person in charge stated that an important strategy for the company in 2019 is to develop and launch new products such as turning units based on the development needs of new energy vehicles and other industries.

Industry enterprises face more severe challenges

Compared to the traditional automotive market, the proportion of new energy vehicles in the base is very small, and according to car statistics in July, the sales of new energy passenger vehicles decreased significantly due to the end of the transition period of new energy subsidies in June. In July, the production and sales of new energy vehicles completed 84000 and 80000 units respectively, a decrease of 6.9% and 4.7% compared to the same period last year, directly affecting the overall growth rate of new energy vehicles. The future trend of new energy vehicles remains to be seen. Equally noteworthy is that in July, commercial vehicle production and sales completed 277000 and 281000 units respectively, a decrease of 6.4% and 14.6% compared to June; The production and sales volume decreased by 12.7% and 6.4% respectively compared to the same period last year.

Industry insiders have basically formed a consensus that the future trend of the automotive market may be in a downward trend for a long time, and competition in the future market will become more severe. Compared to some multinational companies with rich technological reserves in the high-end market, the survival space of some small and medium-sized enterprises is facing more severe challenges.

The machine tool industry is not only affected by the downturn in the automotive market, but the accelerated transformation and upgrading of the automotive industry in recent years have also had an impact on industry enterprises. For example, the continuous upgrading of automotive emission standards and the rapid coverage of manual transmissions by passenger car automatic transmissions may have a greater impact on the demand for domestic equipment. Taking gear machine tools as an example, the current situation of domestic equipment is that a large amount of domestic equipment is used for the processing of manual transmission components. The development momentum of domestic automatic transmissions in recent years has been good, bringing opportunities for transformation and upgrading to this part of domestic equipment. However, the overall proportion of domestic automatic transmissions is still low, and a large number of automatic transmissions are produced by joint venture brand enterprises. Their equipment is mainly imported, and they are supported by enterprises, Many are also required to use imported equipment to process gears. With the increase in production capacity of domestic automatic transmissions, there are opportunities for domestic equipment. However, the requirements for machine tools in manufacturing automatic transmission gears are far higher than those for manual transmissions. Therefore, domestic machine tools are required to have higher accuracy, consistency, and reliability. This is a critical moment to test domestic machine tools and an important opportunity to force the transformation and upgrading of domestic machine tools.

Some problems, not only in the gear machine tool industry, are actually common pain points for almost all domestic equipment, such as weak industrial infrastructure, imbalanced development of the industrial chain, and a lack of professional and technical talents. Specific manifestations may include raw material issues, heat treatment process issues, etc. Some also involve many details such as employee habits and sense of responsibility, which can affect the final quality of machine tools, It requires joint efforts from industry enterprises and upstream and downstream. If the above issues can be gradually resolved, domestic equipment is expected to improve faster. So this is the turning point that determines the current and future fate of machine tools, who solves, who survives; It cannot be solved, being marginalized or eliminated is only a matter of time.