The strategical collaborations and strong ties that Baosteel has built up with local automobile manufacturers indicate that Baosteel is preparing itself to enter the auto parts manufacturing industry. Baosteel is carrying out extensive R&D work and taking substantial steps in this regard. As a result, Baosteel may become a powerful newcomer in the auto parts manufacturing industry in the future.
Baosteel insiders have informed SteelOrbis that the company has recently completed negotiations with Shanghai Automotive Industry Corporation (SAIC) in order to buy its wholly-owned wheels plant in Shanghai. This plant is an important subsidiary of SAIC supplying about 1.5 million wheels to SAIC every year for use in well-known cars such as Santana, Passat, Buick, and Chevrolet.
Besides, Baosteel has also been moving to acquire a majority stake in an auto parts molding plant held by SAIC. It is reported that an agreement in this respect is near completion and that Baosteel officials have already been sent to takeover the company.
Baosteel has also made great progress in building joint ventures for various automobile parts through thermo-forming and fluid-forming. Currently, Baosteel is in contact with a few potential overseas collaborators to negotiate the details of the agreements in this regard. The company is planning to hold majority stakes in the plants in question.
Baosteel has participated in three auto part joint ventures so far: the Guangzhou-based Yorozu Bao Mit auto part company (Baosteel owns a 25 percent stake), and two other auto part companies based in Toronto and Shanghai (Baosteel owns 50 percent of both). In recent years, Baosteel has entered into contact with many local and overseas auto part producers to attempt feasible collaborative ventures.
Of course, Baosteel's entry into the auto parts industry is necessary in order to expand its sales. However, there are also potential risks for the company as this is a totally new sector for Baosteel. Therefore, the company's top managers are acting prudently and are avoiding hasty decisions. Moreover, there are still some top managers in the company who argue that Baosteel should remain as a steelmaker only, due to the potential risks in the auto parts industry.
However, Baosteel's goal of becoming a leading world steelmaker encourages the giant to try expanding into the downstream industry. After all, controlling the end-user market is an effective and beneficial strategy to expand steel sales. Instead of facing stronger powerful challenges from local rivals in the steel industry, Baosteel prefers to take its chances in the auto parts manufacturing industries. For a smooth entrance, Baosteel prefers to begin with wheels, chassis and similar parts, which require less complex technology and reigster high steel consumption.