At the just-concluded China Auto Parts Industry Investment and Financing Summit 2010, the issue of "China's Auto Parts Investment and Financing Strategy" was widely discussed by participants. Experts predict that VC and PE will increase investment in the auto parts industry under the premise that the auto parts market is expanding and the development of energy-saving and new energy vehicles is facing huge opportunities.

The possibility of "docking"

Venture capital invests in companies that have great potential for competition through equity capital, and undertakes corresponding risks to obtain investment returns. Venture capital has become one of the important channels for corporate venture financing. From the perspective of the characteristics of venture capital, when an industry enters a new period of growth and has high growth, venture capital will enter the industry in large numbers.

Judging from the development trend of the Chinese auto industry, the high growth of the auto parts industry is obvious. In the mainframe and aftermarket, the demand for parts and components is increasing. In particular, with the implementation of energy-saving and environmental protection technologies, new energy auto parts and components will face major product changes, and the new parts and components market will have more business opportunities.

In fact, the profitability of parts manufacturing industry is generally higher than that of the entire vehicle manufacturing industry. In the past 10 years, the average profit rate of the world's large vehicle companies is about 4.7%, while the average profit rate of the 10 super car parts enterprises is 6.4%. The average profit of the top 50 auto parts companies in China’s sales is The rate is 6.9%. According to the estimation of China Association of Automobile Manufacturers, the growth of the spare parts market will reach more than 20% in 2010, and more than 100 domestic auto parts key industrial parks will benefit at the same time.

In addition, China's auto parts industry is also facing tremendous opportunities for development. The increase in the global procurement of multinational corporations provides local component companies with the opportunity to enter the global supply chain system. At the same time, China's new rural construction will provide new growth points for commercial vehicle and agricultural vehicle accessories companies.

China's spare parts industry is in this period of high growth, with great growth potential, so that VCs have seen a gold mine waiting for excavation.

How to Connect New Parts of the Parts Enterprise

The industry’s desire for funds is significantly higher in the parts and components industry than in other industries. On the one hand, parts and components companies have to bear the pressure of lowering the purchase price of parts and components for OEMs, and on the other hand they must bear the pressure of raw materials and labor price increases. Judging from the current situation, the competitiveness of China's spare parts enterprises has largely depended on labor cost advantages. Under the dual pressure, parts companies need a lot of money. The current status of most parts and components companies is a serious shortage of funds.

In particular, the large-scale R&D and construction of new energy vehicles requires a lot of funds. Independent innovation and increased R&D efforts have often been forced into trouble due to financial problems.

From the perspective of fixed asset investment in the automotive industry in recent years, the investment in the auto parts industry accounts for about 30% of the total investment. Compared with countries with relatively advanced automobile production abroad, investment is obviously insufficient.

In the past, with the development of labor-intensive inputs, small scales can survive. But now, taking a technology-intensive and capital-intensive development path is an inevitable trend for the development of the automotive industry, and it is an inevitable choice for China's spare parts industry, a virtuous cycle, and participation in international competition.

Due to the imperfect development of China's capital market and a single financing channel for enterprises, the traditional financing channels of auto parts companies rely mainly on bank loans, while banks that pursue the principle of sound operation do not dare to lend funds to high-tech companies with high risks. For SMEs, loans from banks are very difficult due to the small size of assets.

Attracting venture capital is undoubtedly an important way to combine innovative technology with financial capital. However, the current general situation in the Chinese market is that many parts and components companies do not understand how to attract venture capital, especially investment scope and investment in venture capital investment. The decision-making process, operating model, and investment preferences are still unclear.

How can companies get the favor of venture capital?

From the perspective of successful venture capital investment, the clear profit model, forward-looking and practical business plan, new technologies and new products with market demand are the three major factors for successful venture capital investment.

At the same time, after determining the venture capital project, the two-way understanding of investment and financing should be closer, so as to avoid the smooth introduction of funds.

“We hope that everyone understands that good venture capital brings not only capital, but also advanced concepts, considerate services, and experienced professional teams.” Zong Peimin, Chairman of Zhejiang Huarui Investment Management Co., Ltd., said that The venture capitalist is trying to find "good Miao Miao" and do its best to help it.

Of course, companies can't blindly look for venture capital. Zong Peimin reminded that different venture capitalists have unique resources in different fields. Enterprises in different industries are looking for ways to look for ventures. In addition, companies can't behave in a perfect manner in the face of venture capital. In general, they should sign an agreement on rights and obligations.

With the improvement of the intellectual property status of domestic auto parts companies, the soundness of financial systems, and the enhancement of innovation capabilities, domestic domestic parts and components companies will become increasingly attractive to venture capital institutions. How to connect with VCs in the future will be an important lesson for component companies to make up.

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