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Joyson Electronics Turn from M&A to V2X and NEV for New Growth
COVID-19 and China
Tesla. Image credit: Unsplash/Bram Van Oost

► M&A contributes to the growth of safety system revenues, the main constituent of the company, but the sustainability is yet to be confirmed.
► Cooperation with NEV companies including Tesla and layout of the V2X market should provide Joyson Electronics with new growth opportunities.

With the completion and development of the Tesla super factory in Shanghai, the upstream and downstream companies along Tesla's supply chain are expected to benefit. At the beginning of 2020, Joyson Electronics became a regular automotive safety products (steering wheels and airbags) supplier for Tesla China in its building of domestic Model 3 and Model Y cars. 

Joyson Electronics (600699:SSE) is an auto parts supplier and technical service provider that consists of four main business units: safety system, automotive electronics, intelligent V2X systems and auto components. The four businesses reached a total sale figure of CNY 42.88 billion in 2018, up by 210.9% from CNY 13.79 billion in 2017. The reasons include: 1) Joyson’s acquisition of the Japanese car safe manufacturer Takata Corp in April 2018; 2) vast orders from traditional OEMs and NEV firms like Tesla (CNY 7 bn in 2018, 12.5% of revenue), NIO and Lixiang
 
Apart from that, Joyson provides other products and services for NEVs. 

The automotive electronics business comprises human-machine interaction (HMI) and e-mobility,  with the latter containing a battery management system, high voltage charging acceleration and DC (Direct current) to DC converter. Automotive electronics reached revenues of CNY 7.48 billion in 2019  (18.78% YoY growth).  HMI business, the largest within it, achieved revenue of CNY 6.5 billion (7.07% YoY growth). E-mobility contributed revenue of CNY 981 million (94.3% YoY growth) and received new orders exceeding CNY 13.2 billion.

The safety systems business – in terms of total revenue – increased from 28% in 2015 to 76.3% in 2019, which also benefits the growth of total operating income. 

Comparison between Joyson's safety system business and Autoliv

Considering the difference between the profitability of Joyson’s safety system business and Autoliv, an American Swedish automotive safety supplier, the former one still has room to improve. From 2016 to 2019, Autoliv’s gross margin hovered between 18% and 21% vs. Joyson’s with 13.7% to 15.7%. In addition, in 2019, the net profit margin of Joyson was 2.3%, while Autoliv’s net profit margin was 5.4%.

In order to promote the profitability of the automotive safety business, in 2019, Joyson has adopted some cost optimization measures, in terms of asset allocation, personnel structure and production efficiency. However, due to the time lag of the measures, profitability in 2019 has not improved significantly. 

V2X market 

Joyson's intelligent V2X business entered into a new stage of development in 2019. It has integrated Ningbo Joyson Preh Car Connect Co., Ltd. and Preh Car Connect Co., Ltd (a Germany company acquired by Joyson) to establish the V2X division. Its V2X product CNS3.0 system designed for FAW-Volkswagen has started mass-production.

As two mega-trends that are providing opportunities for auto part markers, Joyson has an edge over its peers. The company’s software development has been based on multiple operating systems, which in return benefits customized information systems.

However, competition in this market is heating up. Domestic Internet giants have shown a strong ambition in the layout of V2X. Baidu has released the complete artificial intelligence connected car solution for surface production on its Apollo open platform Xiaodu Car OS. Huawei has established a 5G vehicle ecosystem with 18 car companies. Banma's VENUX system has been carried in more than 400,000 vehicles and Tencent launched its TAI 3.0 in-car intelligent system on January 7, 2020. 

Other than the Internet giants, auto parts companies (like Desay SV) and vehicle manufacturers (like SAIC) are another two kinds of players in the industry, but the latter tends to partner with others, especially Internet companies, to develop V2X systems.

Compared with domestic V2X products, systems launched by overseas giants are more advanced. As we talked in Desay SV, controversy (DSRC vs 3GPP) still exists around the core technology of the V2X, but Autotalks created the world's first dual-mode chipset, with which OEMs can have both DSRC and C-V2X (3GPP standard), and the cellular network is unnecessary. Continental AG (CON: Xetra) partnered with other companies for the implementation of 5G-V2X technology. 

It is hard for Joyson to compete with overseas companies for several reasons: 1) The difference between volume. Continental AG's revenues in 2019 were EUR 44.5 billion, more than 5 times that of Joyson. 2) Most technology is in the US. Some domestic companies developed their V2X systems based on Android/IOS, both of which come from the US. And chips for their products contain technology from the US. In the meantime, the US has been restricting exports of technology to China. It may be harder for domestic companies to release high-tech new products.

Conclusion

By acquiring some large competitors (like Takata Corp), Joyson has penetrated overseas markets and increased its revenues, and it has cooperated with new energy car companies and made progress in the V2X market to achieve new development opportunities. Focusing on the industry for many years, it has established good relationships with many car companies, which may be beneficial to future development.

Despite all those favoring factors above, challenges still exist. The revenue increase from M&As cannot last long. And competition is getting more and more fierce, especially in those relatively new industries (like V2X). In addition, the Chinese auto market experienced its first decline in vehicle sales in 2018, and automakers are facing a slowdown in new car demand, along with auto parts providers.

Editor: Luke Sheehan
ANALYST
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