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Thought of by the fuel car price reduction – if the price of industrial products plummeted by 50%, what would happen to the chemical market?

Recently the car industry ushered in the “suicide” price cuts, with Wuhan Citroen C6 from 200,000 down to 120,000, a number of domestic car companies have begun to reduce prices, a time “120,000 A4, 280,000 A6, buy one get one free” and other activities have emerged, many The prices of many car brands have been reduced significantly. The car is known as an important product of heavy industry, about half of a car is plastic parts, is an important consumer market of plastic industry. Translated with www.DeepL.com/Translator (free version)

This significant reduction in auto prices has not yet had a large impact on the chemical market, but from one aspect can also see that with the deepening of automation in the auto industry, auto production costs are significantly lower, such as Tesla’s frequent reductions in selling prices, is the market feedback on the supply of domestic components to increase the proportion. The car is only one of the main products in the industrial goods market, there are many similar products. If the price of industrial products all show a 50% decline, what impact will it have on the chemicals market? What kind of performance will the chemicals market make?

(1), the decline in industrial commodity prices is a reflection of supply chain optimization.

The significant drop in Wuhan Citroen prices is the local government’s support for the Citroen brand, the local government action, the price difference is paid for by the government. And this Citroen price reduction, did not bring reverse pressure to its supply chain, the supply chain as a whole is still in a state of financial balance. In other words, the car price reduction will not bring impact on its overall supply chain. And the price cut led to the reduction of other car brands, perhaps because of the serious “inward” behavior of the Chinese auto market. China has added several new energy vehicle brands in recent years, and under the development trend of new energy vehicles, the growth rate of traditional fuel car sales has fallen again and again, and before Citroen’s price cut, several brands have already seen significant discounts, such as Volvo’s maximum discount of more than 100,000 yuan for some models. Therefore, this time the Citroen price is significantly reduced, more on the one hand is the deterioration of the competitive situation in the Chinese auto market, brought about by the vicious competition to seize the market performance. However, this concerted price reduction of auto brands may have a huge impact on the Chinese supply chain system. There are two possibilities for the price cuts of other auto brands. One is the cost reduction brought by the optimization of the supply chain system, and the concessions made to seize the market. The second aspect is to clear inventory or loan repayment and make a loss of money. With the optimization of the automotive supply chain, the cost of car manufacturing is rapidly decreasing, but most car companies to model upgrades to avoid the negative impact of car price reductions. Citroen took the lead in significantly reducing the price, can be said to have opened the prelude to the auto industry “suicide” price cuts

With the impact of Tesla’s continuous price cuts, there is room and pressure to continue to reduce prices for a number of car brands produced in China in the future. If the auto industry continues to reduce prices autonomously, what will be the impact on the chemical products in the auto supply chain?

(2), this time more brand premium concessions, the chemical industry chain has little impact on the automobile as a major product in the industrial products, of which there are nearly a hundred applications of chemicals, the most used plastic products, commonly used plastics are polypropylene, polyethylene, ABS and PVC. these plastics, are used in the car bumper, sun visors, shelves and other locations. In the automotive engine components, some plastic elastomers are also used, such as PPS, POE and other products, but the overall amount is small, not as a bulk of plastic products in the automotive industry.

It should be noted that the supply chain in the automotive industry is based on the links of plastic – modification – plastic parts manufacturing – automobile manufacturing. Most of the plastic products used in automobiles are mainly modified plastic products, such as polypropylene modified TPO for car bumpers, modified PPS for headlights, and modified polyurethane foam for car seats. These modified plastic production enterprises, currently in China is concentrated in the hands of a few listed enterprises. Although the supply of automotive modified plastics is relatively concentrated upstream, but due to the different models, resulting in the specific characteristics of the materials they need there are also differences. Therefore, the modified plastics companies, mostly to the specific needs of the end customer, for the modified plastics physical modification direction, the same downstream and different brands also exist a large difference. Therefore, if the price of the automotive industry is significantly reduced, on the one hand, you can reduce production costs through manufacturing optimization, offset the loss of price reduction, the other side is bound to achieve loss avoidance by compressing procurement costs. However, if there is no advance cost control, and the first to reduce prices, more from the car companies themselves concessions. This time due to Citroen downgrade brought about by the tide of car companies to reduce prices, there may be an unpredictable sudden price cuts, choose to face this concerted price cuts of car companies, more brand premium level of concessions, the impact on the chemical industry chain is minimal.

(3), if the future continued to reduce prices, is expected to seriously impact the chemical market

The future of China’s auto industry still has more room for price reductions, on the one hand, new energy models frequently, in the automotive supply chain, design optimization and other aspects have made great changes, thus achieving cost reductions in the planning and design phase; secondly, in the continuous impact of new energy vehicles, traditional fuel car sales impact is huge, must continue to reduce costs to protect market share and sales. Therefore, the auto industry’s “internal volume” has officially begun, the car price reduction is also inevitable. In the general trend of car price reduction, the impact on China’s chemical industry will be huge.

First, the automotive industry for cost control, there will be more “plastic instead of steel” materials, the automotive industry for the scale of consumption of plastic demand shows a general trend of rising.

Second, the increasingly fierce competition within the automotive industry, the standardization of cars under different brands is expected to become an important operation method to reduce costs in the automotive industry, and the main performance of automotive standardization, more from the common internal parts, no longer customized according to the special needs of the consumer end, which is expected to significantly reduce the procurement costs of cars, as well as increasing the proportion of common plastic products used in cars.

Thirdly, the lowering of auto prices will constrain the prices of auto plastic parts at a certain level and reverse transmission to the bulk chemical manufacturing industry through the industry chain. If the auto industry reduces prices by 50% at the same time, then the reverse transmission logic for the supply chain is the same, and will also produce sales constraints for the upstream end of the chemical industry chain through the consumer market in reverse.

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