The costs of auto parts constitute about 70% of the total production cost of the entire automobile. Some of the major raw material and sub-components used in this highly complex industry that spans auto glass/float glass, car tires, car wheels, engine-oil radiators, and inter-coolers as well as car batteries. The great majority of the companies focus on particular parts or markets, and most concentrate on single products. Only some larger companies can manufacture a wide variety of auto parts.

Typically, Chinese auto parts sell for around 30–50% less than comparable auto parts made in Europe, North America, or Japan. Estimating costs in the Chinese auto-parts industry becomes especially difficult because of subsidies to Tier-3 suppliers including steel and glass manufacturers, and government-controlled pricing of energy.

In 2010, mechanical parts and accessories, including bearings, filters, covers, brakes, and clutches, made up the largest segment of this industry, accounting for 56% of total revenues. Mechanical parts formed the majority of automobile components, and their prices have increased in the past few years due to rising raw-material prices. Electric motors, including starting motors, alternators, control units for electronic systems, and mechanical and electronic drivers were the second-largest industrial segment, accounting for 23% of total revenues. Electronic parts and accessories, including electronic-control systems for engines, anti-lock brake systems, meters, GPS, transducers, entertainment systems, and items used for control, safety, communication, and entertainment made up the third industrial segment in the industry, accounting for 21% of total revenues.

Raw materials and sub-component purchases, including iron, cold-rolled steel, glass, rubber, and machine parts contributed to 66% of the costs of manufacturing Chinese auto parts. Labor accounted for just 5% of costs, with another 2% for management costs. Total industry wages have increased significantly during the period under study; annualized growth has been 22%. Total wages experienced the fastest growth in 2008, when the employment level rose by 45%. The average wage per employee steadily increased over the current performance period, and, simultaneously, the share of wages in industry revenue decreased. This indicates technology changes, higher usage of machinery and equipment, and higher skill requirements in this industry. Foreign and SOE companies’ large-scale production requires significant capital to install automated processes, equipment, and machinery. Upgrades of plant and equipment and upgrades for process and product development also require significant investment. Many manufacturing processes involve repetitive activities that large and foreign companies have automated to increase production speeds and cost efficiencies. Small-scale domestic manufacturers generally have lower capital-investment levels than larger firms because of the high costs of acquiring new equipment, and because of the basic auto parts they produce.

In 2011, foreign capital accounted for more than 36% of China’s auto-parts market. Foreign companies monopolize Chinese production of some complex auto parts, such as high-end electronic controls, fuel-injection systems, transducers, brake systems, and steering systems.

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