On July 6, Baturu, a full-range automotive parts e-commerce company, announced the completion of a Series C round of financing totaling 100 million US dollars, led by Warburg Pincus, with original investor Zhongding Ventures participating.

Also in early July, automotive supply chain enterprise "Kangzhong Auto Parts" announced the completion of a 50 million US dollar B+ round of financing. New investors include a domestic insurance group and China International Capital Corporation, with existing shareholders such as Cornerstone Capital continuing to increase their stakes.

The "China Automotive Aftermarket Supply Chain White Paper" released by global strategic management consulting firm Roland Berger shows that China's automotive parts aftermarket has experienced rapid growth, with a compound annual growth rate of 20% from 2011-2016, growing from approximately 190 billion yuan in 2011 to nearly 500 billion yuan today, with the overall market size expected to exceed 800 billion yuan by 2022.

Facing enormous demand, the domestic market is clearly a blue ocean: in the US market, the top 5 automotive parts retailers hold over 30% market share with a market value exceeding 76 billion US dollars; however, in China, no company in the automotive supply chain sector has captured more than 1% market share.

Hu Zhengwei, Executive Director of Warburg Pincus, analyzed in an interview with 21st Century Business Herald: "Although the market is enormous, the entire automotive supply chain industry is highly fragmented. In China, the extremely dispersed and fragmented market lacks unified standards, and the multi-tiered and non-standardized distribution system has led to serious resource waste and inefficiency in the industry."

He believes that China's market has significant consolidation potential compared to overseas markets, providing leading enterprises in the automotive aftermarket supply chain with enormous development opportunities.

Mining the "Blue Ocean Market"

The automotive aftermarket has enormous potential. Benefiting from the continuous increase in vehicle ownership and the aging of vehicle fleets, China's automotive parts market will experience rapid development over the next decade.

With the development of the automotive aftermarket, numerous automotive parts enterprises have emerged in the market, many of which are internet platforms that have attracted capital interest. The two main categories of platforms include: B2C platforms targeting end consumers, and B2B platforms targeting professional independent aftermarket parts and service providers.

Roland Berger's report points out: "Relatively speaking, B2B parts distribution internet platforms have higher professional and technical requirements, with fewer market players, particularly internet platforms deeply involved in repair and accident parts trading, which currently remain a relatively blue ocean."

Automotive parts come in many varieties. Based on maintenance and repair characteristics, they can be divided into four categories: maintenance parts, wear parts, repair parts, and accident parts, represented by engine oil and filters, tires and batteries, starters and alternators, headlights and bumpers respectively.

Among these, B2C platforms primarily sell high-frequency, low-price maintenance and wear parts; B2B platforms similarly focus on maintenance and wear parts, with only a small portion of internet platforms involved in B2B trading of repair and accident parts.

"The traditional sales model for wear parts is already quite efficient, and we don't particularly favor projects that only focus on this single category. Full-range parts have very low turnover rates, with highly dispersed upstream, midstream, and downstream sectors, which represents an excellent investment opportunity for us," Hu Zhengwei told reporters.

Regarding the value that investment institutions bring to enterprises, Zeng Wangui, founder and CEO of Baturu, stated: "Investors at each stage are like gas stations for us. During our growth process, they bring not only capital but also resources in various aspects."

In Baturu's latest financing round, Warburg Pincus stated that its investments in multiple enterprises in the mobility chain show obvious synergies with Baturu's business, and will actively promote resource coordination; on the other hand, in areas such as enterprise strategic planning, core talent recruitment, and industry expansion, assistance will be provided as needed.

"Internet+" in Automotive Supply Chain

The introduction of IT and internet technology has brought greater development opportunities to the enterprise market.

Roland Berger's analysis suggests that compared with the US market, China's market, influenced by rapid e-commerce development, will form a distribution model centered on platforms in the future. "From the perspective of development trajectory and mode, China is likely to skip the consolidation period dominated by chains and alliances, and rapidly transition to the platform period dominated by internet enterprises."

Currently, numerous automotive parts e-commerce platforms have emerged in the market. To stand out among many platforms, aftermarket distribution platforms must be based on transaction platforms with parts databases, deepen binding relationships with upstream and downstream partners, and explore business models for data value realization.

Database construction and market expansion are common directions for capital investment after financing rounds for automotive aftermarket supply chain enterprises. For example, Baturu will continue to deepen its efforts in three areas: databases, systems, and supply chain, while strengthening connections with other automotive aftermarket sectors such as insurance loss assessment and supply chain finance; Kangzhong Auto Parts will focus on three areas in its new financing round: database construction and data application, intelligent automotive parts storage and transportation center construction, and regional market expansion.

From a process perspective, IT is the foundation for internet development, and internet development is the engine for rapid regional expansion—the internet enables rapid information matching and promotes commodity transactions; with strong system and database support, enterprises can more easily apply mature systems and quality operator resources from one region to market expansion in new areas.

"The core of this industry is to build good systems and databases. Systems and databases are different things; a system is an overall framework, while a database is the information that fills the entire framework. When information comes in, from the vehicle to the vehicle model, to the parts, to finding the parts from suppliers and running through the entire process—only then can a complete transaction loop be achieved," Zeng Wangui emphasized.

Solving Fundamental Contradictions

In January 2017, listed company Pioneer New Materials transferred its 20% stake in养车无忧 to Mao Jijun, and Zhuge Tianxia's 18.77% stake was also transferred at a low price. After these two incidents occurred in succession, market voices questioning the automotive parts e-commerce model emerged.

"These two cases are actually quite simple—they didn't solve practical problems. One must grasp the essence and solve fundamental contradictions, always answering the question: 'What kind of product, at what cost, solves what problem, and why wasn't this problem well solved in the traditional supply chain before'—this is a question that must always be answered," Hu Zhengwei believes.

"Users will definitely move toward platforms with better value for money and better user experience," Hu Zhengwei stated. The internet is rapidly changing traditional industries, and when widely applied to a specific segment, it brings a winner-take-all pattern.

The automotive aftermarket parts supply chain connects parts suppliers, distributors, retailers, and end consumers, playing a crucial role in the industrial ecosystem; at the same time, as an intermediate pathway for aftermarket parts, it is an important link in improving the efficiency of China's aftermarket parts distribution in the future.

From the perspective of the automotive aftermarket supply chain, a competitive business model needs to layout each link of the supply chain while strengthening the platform's core capabilities through value-added services.

Zhu Lin, Project Manager at Roland Berger, told 21st Century Business Herald that automotive aftermarket supply chain enterprises have four types of business models: upstream supply chain concentration, downstream supplier integration, digital platform connecting supply chain upstream and downstream, and providing digital value-added services.

"In aftermarket parts supply, a more comprehensive business model should use a 'transaction system based on parts data' as the core hub, which can both connect upstream suppliers and provide comprehensive services to downstream customers," Zhu Lin said. (21st Century Business Herald · Zhao Na)

(Original link: Mining Automotive Supply Chain: Investment Opportunities in a 500 Billion Yuan Market)