China’s Auto Makers are Revolutionizing Automotive Manufacturing

This article introduces the paper "China's Auto Makers are Revolutionizing Automotive Manufacturing" published by Horizon Insights Inc in April 2022.

Investment Thesis: Revolutionizing Automotive Manufacturing

The automotive industry is undergoing a significant transformation with the adoption of new integrated one-piece die casting technology using heat-free alloy casting materials. Here's a breakdown of the key investment theses:

• Emerging Technology: While still in early stages, integrated one-piece die casting is expected to become mainstream. Domestic enterprises like L.K. Technology (0558.HK), Lizhong (300428.SZ), and Wencan (603348.SH) are poised to benefit due to their existing technological advantages.
• Cost Reduction: This technology significantly reduces car production costs. Automakers are increasingly adopting it as the range of integratable auto body parts expands.
• Tesla's Implementation: In 2020, Tesla pioneered the use of this technology by die-casting the rear chassis (base frame) of its Model Y, integrating over 70 parts into a single piece. This resulted in a 40-50% reduction in manufacturing costs.
• Future Potential: Beyond the rear chassis, other car body parts like the front cabin frame, battery tray, and other components could be integrated. The ultimate goal is to manufacture the entire vehicle using just 3-4 ultra-large structural body parts.
• Domestic Automakers: Automakers such as NIO, Xpeng, and Li Auto are expected to launch new cars using this technology in the second half of 2022.
• Demand for Ultra-Large Die Casting Machines: The demand for lightweight body frames is driving explosive growth in the market for ultra-large die-casting machines. From 2015-2020, China's die-casting machine production grew at about 20% annually. After 2020, the growth is expected to exceed 50% annually from 2022-2025.

Key Players and Technological Barriers

• L.K. Technology (0558.HK) dominates the domestic ultra-large die-casting machine market with over 80% market share due to its technological first-mover advantage. Competitors include Buhler, Yizumi, and Haitian Metal.
• Heat-Free Casting Materials: A major technological barrier has been the development of heat-free casting materials. Lizhong Group and others have developed such materials to break the overseas monopoly. Tesla initially used imported materials in its Model Y. Now, companies like Lizhong, Wencan, and NIO are using independently and domestically developed heat-free alloys.
• Traditional vs. New Technology: Traditional die-casted frames require heat treatment, which can lead to deformation and surface defects. The new heat-free manufacturing technology overcomes these problems.
• Integration of Die-Casting Factories:
  • Substantial equipment investment capital
  • Mold manufacturing know-how
  • New heat-free die-casting technology
  • Upstream and downstream industry logistics
    As an intermediate link, the main entry barriers for die casting factories are the equipment investment and mold manufacturing technology.

Benefits of New Die Casting Technology

The new innovations in die casting technology and manufacturing process are expected to:

1. Improve car production efficiency
2. Lower car manufacturing cost
3. Lower carbon emissions during production
4. Shorten production cycle
5. Simplify complex manufacturing processes
6. Reduce deformations and surface defects
7. Reduce a car's body weight
8. Reduce energy consumption and improve cars' mileage range

Tesla's Implementation in Detail

Tesla's integrated die-casting technology simplifies production, shortens the cycle, and reduces manufacturing costs by at least 20%.

• Integration: Tesla integrates over 70 parts of the rear chassis into one piece. Previously, the traditional process was mainly used for spare parts like engine blocks and transmission boxes.
• Model Y Production: 79 parts of the Model Y's rear chassis were integrated into 1 to 2 large frame structures. The North American plant uses two 4,000-ton die-casting machines, while the Shanghai plant uses one 6,000-ton machine.
• Cost Reduction: Integrated die-casting reduces costs by lowering production time, decreasing production line investment, and reducing material costs. Official data suggests a 40-50% cost reduction, with actual reduction around 20-30% at volume production. Furthermore, the use of aluminum alloys reduces body weight by 5-10%, improving electric car mileage.

Table: Tesla's Model Y Cost Reduction Factors

Acceleration of Integrated Die Casting in 2021

Integrated one-piece die-casting manufacturing of body frame structures began to accelerate in 2021 due to technology maturation.

Table: Domestic Brands of Die Casting Machine Clamping Force Upgrades

Table: Development of Domestic Heat Treatment-Free Materials

• Maturity & Market Growth: The maturity of the die-casting process is driving the acceleration. Major market growth factors include: breakthroughs in die-casting machine clamping force, availability of heat treatment-free materials for localization, and advancements in integrated die casting-mold manufacturing.
• New Automakers Leading: New automakers such as Xpeng, NIO, and Li Auto are working with contracted integrated die-casting factories and are expected to launch new car models in the second half of 2022. Traditional automakers like BYD, Geely, and FAW are catching up with R&D and testing, with mass production expected within 3 years.
• Integration Objectives: The final objective of integrated one-piece die-casting manufacturing process is to integrate the more than 370 auto parts into 3-4 structural body parts: rear base-floor frame (rear chassis), front cabin frame, rest of body frame, and battery tray.

Explosive Market Demand and Industry Overview

The industry chain includes:
*Die Casting Machine
*Material suppliers
*Mold Factory
*Die Casting Plant
*Automakers

Table: Domestic Super-Large Die-Casting Machine Order Situation

Table: Estimated Prices of Each Brand of Die-Casting Machine (in yuan)

Table: Mold Price and Material Price

Only high-volume production, exceeding 22,000 units, benefits from cost reduction.

Market Potential and Forecast

The ultra-large die-casting machine market may undergo phenomenal growth in the next 5 years.

Table: Market Forecast for the Next 5 Years

L.K. Technology: Market Leader

L.K. Technology's super large die casting machine has proven track records in the domestic market as it is the supplier of Tesla's 6000 tons machine used for Model Y

Table: Machine Features by Category

Aluminum Alloy Casting Material Using Heat-Free Technology

Car parts manufactured by Integrated one piece die casting are usually large in size, thin walled, have complex
structure, easily deformed, and therefore, heat-treatment-free materials and high vacuum die-casting process
manufacturing are required.

Table: Global progress in the development of heat treatment-free materials

Table: Estimated demand for heat-treatment-free materials

Table: Business, Current Capacity and Future expansion plans

New integrated die-casting technology will become mainstream

Fixed asset investment: number of large and super large die-casting machines, plant
investment, etc.

Mold manufacturing capacity: few domestic die-casting factories have more than 6000 tons
of ultra-large mold production capacity

Die casting technology: product qualification rate, sustainable production (start-up rate),
technician training system, etc.