Auto components firms step up China investments

China's macro economy may be showing signs of softness, but global automotive plastic component makers at the Auto Shanghai fair had few, if any, plans to hit the brakes with their investments.

French plastic fuel tank maker Inergy Automotive Systems, for example, said it was building two tank blow moulding plants in China this year, and planned another in 2014 to bring its advanced twin-sheet blow moulding process to the country. It's all to tap increased local demand for plastic fuel tanks.

Auto interiors suppliers like Johnson Controls from the United States and Faurecia from France also are investing heavily, with Faurecia announcing a 293 million Chinese yuan (€36.5m) JV with China's Chang'an Automobile Group to build two new factories for instrument panels, door panels and other components for the local market.

Away from those Tier 1s and further down the supply chain, smaller companies also are reporting investment plans.

Even with a slowdown from China's previous breakneck pace, the companies said their new factories reflect that China's market continues to grow and that Chinese vehicles, both from international car makers and local brands, are getting more sophisticated and increasingly use the same technology as in mature markets.

"We have over 10 factories in preparation for the near future in China, because of the growth," said Johannes Roters, group VP and China general manager for JCI's Automotive Experience Group. "China is now the biggest automotive market, around 20 million cars, and the growth rate we expect in the next years is between 6-8%."

"The market is more mature now and the growth is no more double digit…. but 6-8% is still a big number in comparison to other regions," he said.

Chinese cars are using more plastics-related technology, according to Inergy, which was a first-time exhibitor at Auto Shanghai. The show took place 21-29 April, with a media day 20 April.

Inergy, a unit of French supplier Plastic Omnium, set up its first fuel tank blow moulding plant in China in 2007, in Wuhan, and its second in 2011, near Beijing.

This year it will build its third and fourth, in Guangzhou and Shenyang, and follow that up with No. 5, in Ningbo, in 2014. Ningbo will begin with traditional plastic tanks for China's Geely Automotive and then in 2015 add the twin-sheet technology for a GM joint venture car.

"It's the result of a long effort we are doing in this market," said Gerd Behnstedt, executive vice president of corporate sales at Inergy.

In particular, he said, the growth is driven by "booming" sales by global car makers in China and their joint venture factories, as opposed to the purely local Chinese brands.

Among purely local brands, conversion from steel to plastic fuel tanks is slower, he said.

"We are with the joint ventures," he said. "Here we have the full effect of the [conversion to] plastic."

About half of China's cars use plastic fuel tanks, compared with more than 90% in the United States and Western Europe, he said. Behnstedt estimated that China could see 70% of its cars using plastic tanks by 2020.

Including the Inergy plants, Plastic Omnium plans to build seven factories in China in the next two years, with four more factories in its auto exterior unit planned in Yizheng, Shenzhen, Shenyang and Ningbo.

Faurecia, for its part, predicted its sales in China would double to €3.3bn a year, from €1.5bn last year. Sales in the country rose 25% in 2012, outpacing the market, and the company opened four additional factories there.

Like Inergy, Faurecia's growth in China is driven by the Chinese cars made by the global auto companies.

Purely local car makers accounted for only about 10% of its business, and while executives in an interview at the show said that could double in five years, it's unlikely to rise above 20%, as international brands will remain the driver in China for the company, said spokesman Olivier Le Friec.

Smaller foreign companies were also reporting increases in sales and eyeing additional capacity.

US-based Protective Industries spent $3.5m (€2.7m) for a new injection moulding facility in Shanghai last year, after first opening a factory there in 2008.

SRG Global said its Suzhou factory for decorative trim and plating of plastic parts is likely to be full next year, a sharp turnaround from 2009 when the factory was "grossly underutilized" following SRG's creation out of an acquisition by Guardian Industries Corp.

"Even a decelerating China will likely have larger increases on a nominal basis than anywhere else in the world… it's still going to have a greater impact," said SRG President and CEO Kevin Baird. "We would expect China would have the greatest single growth opportunity for the company."