Fuyao Glass - Veni Vidi Vici
Not all auto glass makers are worthy or equal
Summary
Fuyao glass is a leader in the auto glass industry due to cost advantage and tech leadership. Despite 35% market share in auto glass, it continue to gain more. I come I see I conquer? Nah… the founder Cao Dewang is more humble, he just wants to “make China made glass for the Chinese people” to break the glass oligopoly by the Frenchy and Nippy.
Fuyao now has ~70% share in China and is growing. US share going from 40% to >50% next 3 years. EU Saint Gobain with 30% market share will exit the market.
Company growth projection of 10%+ per annum is only based on contract and industry trend and not taking into account peers exit market. But it’s a high operating leverage business i.e. utilization of 60% to breakeven follow by scale benefit into 80% and peak out production 85%.
2H25 headwind on margin from new US and China plant. Could be an entry point. I guess. Cant’ figure out why stock stop moving up? Or concern in pricing due to heavy competition among OEM in China?
History
Saint-Gobain is the largest and oldest glass company in the world setup in 1665 by Louis XIV to break the Venetian dominance in mirror which was a luxury product back then.
Fast forward to modern day China. At early stage of China auto industry, foreign OEM dominated the market and foreign OEM use foreign glass companies. Cao Dewang noticed that auto glass is dominated by French and Japanese. He want to create a China glass company to break the oligopoly to “make China made glass for the Chinese people”.
In 1996, Saint-Gobain JV with Fuyao glass in China. Saint-Gobain invested $15m for 51% stake in Wanda Glass. Wanda glass made quantum leap to achieve US QS9000 and German VDA6.1 standards for auto glass.
Saint-Gobain exited 1999 sell to Fuyao $30m with a non-compete clause for next 5 years in China. Saint-Gobain strategic realignment of biz and China auto glass market was dynamic to changes hence easier to have one owner / decision maker.
What is auto glass?
It’s a sandwich of two piece of float glass with plastic in between.
Why EV use more glass?
1. Higher chassis so use glass room to avoid claustrophobic feeling.
2. Glass cheaper than steel.
3. Glass can add more function.
Industry Trend for Fuyao
1) Auto glass had moved from being a structure to function (heat, uv, adas signal receiving, antenna, lidar, display) +6-7% CAGR from 2022-2029 (down from +10% due to auto competition and oversea slow EV penetration) ie grow 2x.
2) Area usage +2% p.a. since 2019 when Tesla start in China. Local China EV ramp started around the same time ie Nio 2018, Li Auto 2019, Xpeng 2020. Now China penetration is only 17-18% penetration sky roof and expect to grow to 30%. Oversea penetration is only 5% now.
3) Market share gain - CH driven by price vs oversea driven by market share. 2-3% p.a. If market is slow, market share gain % higher.
Summary = Expect revenue growth 6 + 2 + 2 = 10% per annum.
How to sell?
Contract price, volume for life cycle of model. (ICE 6-7 years, EV not sure too early to tell). Second year onward price down single basis point per annum. One year forecast and monthly adjustment.
Cost
COGS - gas / soda ash => mfg cost dont need to pass to customer BUT logistic can pass to customers.
Depreciation - capex peak out 2025. China has two plants (fuzhon, anhui) RMB 60yi 13 years life.. 6.5-7%..
Cheaper vs peers
· Product innovation Fuyao lead industry.
· Scale larger each factory est 7x vs peers in an asset heavy high operating leverage industry.
· UT 55% in CH and 60% oversea to BEP. UT >80% scale benefit kick in UT not much more impact. Max out 85%.
· Peers old plant, diversified location ie smaller scale… then difficult max UT all factory.
· Labor mainly cheaper in China.
· Automation higher => efficiency.
· Build a new plant? 2-3 years construction + OEM qualification + 2-3 years to ramp up to max production level. Hence, no peers willing to invest and no cash flow for many years while their existing plant has useful life of 13-15 years.
Region
US
· With new capacity ready by end 2025, 7mil sets largest in the world vs peers scale 1-1.5m sets.
· US local car production 11mil per annum but sell 17m vehicles. After sales NA 4-5mil (3mil). US TAM 11 + 4 = 15m
· US every 100 person 80 cars.
· Now have 2mil export from China (export since 93-94 for after market). 2014 only start US factory not enough to sell US customers. Aftermarket can pass on price better.
· 2024 sold 4m (US plant 5m capacity) + 2m (export from CH) = 50% OEM, 50% after market. New capacity for OEM. Mix will be 1/3 after market 2/3 OEM.
· 2027 full production 85% ie 6mil
· Saint Gobain in process to sell US plants.
China
· 75% mkt share. Higher share in PV. Lower in commercial.
· NEV use less suppliers vs traditional ICE.
· Function of glass improve so need to buy from dominant suppliers.
· CH auto model cycle very short 1.5 years.
EU
- Diversify many countries vs Saint Gobain French company. Hence not likely to see tariff on auto glass imported from China by Fuyoa glass.
- Fuyao cheaper than European local plant due to 1) Scale 2) Energy Cost 3) Labor cost.
- St Gobain exit auto glass business.. they have 30% share.
Russia
- UT 60%. Fully depreciated. Cost low energy, labor, material. Profitable now. Main impact ruble vs RMB.
Why aluminium refinement?
Aluminium part of car. EU 29.3m (RMB 240m loss)
2015 start to sell some parts for auto co. Exterior decorative.
Mainly to sell together to customers that buy glass. Target RMB 60yi.
Guidance
· Revenue growth 10-13%
· 2025 margin same but logistic / material cost down. But Fujian / Anhui new plant depreciation / early ramp labor cost vs no revenue.
· 2026 margin improve as UT US up. (2025 30%, 2026 70%, 2027 85%). CH factory ramp up.
· UT 1Q 80% 2Q 83%
Other glass segments?
· Solar, building float, handset all de-growth.
· Auto glass is the only growing glass segment.
· Many building material companies want to get into auto glass due to high growth start with low entry barrier side glass. Many tried but were unable to gain much.
YU7 > SU7 glass value.
