The electric vehicle market has seen a remarkable surge in recent years, and Tesla is undoubtedly at the forefront of this revolutionIn 2024, Tesla achieved a staggering sales figure of 1.789 million units globally, retaining its position as the world's top seller of electric vehiclesWith the anticipated release of the new Model Y and the budget-friendly Model Q by 2025, experts predict that Tesla's sales will experience even greater growth, solidifying its dominance in the market.

But Tesla is not stopping at just electric vehicles; it's also venturing into the realm of roboticsElon Musk has announced ambitious plans for the company to produce thousands of Optimus robots by 2025. If successful, production could ramp up to half a million units by 2027, suggesting a future where robots outnumber humans, with the potential for five out of every six individuals to be a robot!

One can’t overlook the impressive localization of parts manufactured in Tesla's Shanghai facility, surpassing 95%. This substantial growth in sales is expected to uplift the performance of key players in the domestic supply chain, especially core enterprises like Top Group and Sanhua Intelligent Control, which have gained considerable attention as Tesla's global suppliersTop Group, in particular, has benefitted not only from the ramp-up of Tesla's electric vehicles but has also established a robotics division to diversify its portfolio.

Since becoming part of the Tesla supply chain in 2016, Top Group has seen its annual revenue soar from 3.938 billion yuan to an astounding 19.701 billion yuan by 2023—an impressive expansion rate of over five times, significantly outpacing the 2.6 times growth that Sanhua Intelligent Control achieved during the same periodThis indicates that Top Group's collaboration with Tesla stretches beyond mere supply; it reflects a robust and thriving partnership that has greater implications.

When comparing the financial metrics of Top Group and Sanhua Intelligent Control over the past five years, one interesting observation emerges

Advertisements

From 2019 to the third quarter of 2024, Top Group maintained a gross profit margin around 20%, which is lower than Sanhua Intelligent Control's average gross profit margin of 28%. This difference is understandable, as Sanhua has a cooling and air conditioning components segment that boasts a gross margin of approximately 30%, contributing to about 60% of its revenue—thereby raising the company's overall gross margin.

However, what is striking is that despite an 8% disparity in gross margin, Top Group's net profit margin has remained competitive, averaging about 10% in recent years, and even reaching 11.59% in the third quarter of 2024, thus overtaking Sanhua Intelligent Control in this aspectThis starkly demonstrates Top Group's exceptional cost control capabilities.

As stated in the financial reports, Top Group's management expense ratio decreased from 4.29% in 2019 to 2.44% in the third quarter of 2024, while the sales expense ratio saw a decline from 5.36% to 1.18% in the same timeframeIn contrast, Sanhua's management and sales expense ratios remained at higher levels of around 6% and 3%, respectively.

This seemingly inconspicuous detail has been pivotal in establishing Top Group as a critical supplier for TeslaWhy is this significant? Tesla's CEO, Elon Musk, places immense emphasis on cost management, even creating an amusing metric called the "Idiot Index," which compares the total cost of a product to its direct materials costA higher value indicates poorer cost control, signaling less efficient production practices.

This principle has influenced Tesla’s criteria for selecting suppliers, affecting partnerships like the one with Panasonic, which once struggled with a high Idiot Index and was eventually replacedAccording to financial data, Top Group reported that the direct material costs for its automotive parts constituted 77.6% of their total costs, leading to an Idiot Index of just 1.2—an impressive figure that reflects effective control over production costs

Advertisements

This alignment in cost control philosophy between Tesla and Top Group fosters a cohesive partnership.

Top Group is not solely dependent on Tesla; it is diversified across several platformsCompared to Sanhua, which solely focuses on thermal management, Top Group is the only comprehensive automotive parts company in China, boasting an impressive portfolio of eight major product lines, including suspension systems, interior and exterior trim systems, thermal management systems, and lightweight chassis, among others.

The platform approach allows Top Group to swiftly respond to clients' needs, developing any necessary automotive components in record timeOne of its standout offerings is its lightweight chassis systemAs electric vehicles progress to become the standard, optimizing range becomes crucialNotably, Tesla emphasized a 26% improvement in range for its updated Model Y, a feat critically reliant on reducing vehicle weightResearch indicates that for every 10% decrease in weight, electric vehicles can boost their range by approximately 6-8%. It's clear that lightweight design is a cornerstone of future electric vehicle innovation.

Top Group has been ahead of the curve in this regard, having implemented a lightweight suspension system project as early as 2003. Through strategic acquisitions in 2017, Top Group enhanced its lightweight chassis product line, positioning itself among the earliest market players to embrace this technologyToday, the company wields a complete lightweight solution featuring "four optimizations," "six core processes," and "ten product lines," with its chassis capable of reducing weight by 30-40% compared to traditional automobiles.

This technological advantage is evident in the growth of Top Group's chassis system sales, from 1.544 million units in 2018 to 5.591 million units in 2023, reflecting a rising unit price of 1,095 yuan by 2023. The symmetrical trends in both volume and pricing are encouraging indicators of future success.

Looking ahead, it's imperative to discuss the ambitious trajectory of Tesla's foray into robotics

Advertisements

In July 2023, Top Group established a dedicated robotics division, focusing on developing electric drive systems, linear actuators, and robotic arms—all critical components of humanoid roboticsBy 2024, the company intends to launch two production lines for electric drive systems, with an estimated annual output of 300,000 electric drive actuatorsThese actuators are the most valuable segment of humanoid robots, constituting a staggering 49% of their overall cost.

While skeptics may question the viability of humanoid robots, it’s undeniable that Tesla is pursuing this venture earnestlyAs highlighted during the recent CES event, Musk confidently stated that humanoid robot production would increase tenfold by 2026, followed by another tenfold increase in 2027. This progression anticipates a future where robots outnumber humans in a ratio of at least three to one, possibly even five to one.

Given that the market for linear actuators is projected to reach 180 billion yuan by 2035, if Top Group captures more contracts with Tesla regarding actuator production, humanoid robots could potentially become its second major growth curveWith its strategic success, Top Group remains firmly associated with Tesla, but there’s an important question: What if Tesla’s sales falter? Could this impact Top Group's financial success?

Fortunately, this concern is minimalAs previously mentioned, Tesla isn’t Top Group’s only major clientThe company has established solid partnerships with prominent industry players such as Geely, Huawei-Saiyis, BYD, SAIC-GM, and a plethora of new car manufacturers, ensuring stability and ongoing performance for the company.

In conclusion, Top Group's significant advantages in cost control, comprehensive platform capabilities, and leading-edge lightweight chassis design cultivate a deepening relationship with TeslaAs the humanoid robot market accelerates towards commercialization, it seems likely that Top Group will unlock new levels of growth and development.

Advertisements

Advertisements