TPMS policy: mandatory installation of TPMS in vehicles in production
TPMS policy released in 2017. According to the TPMS policy, all new certified cars will be installed with TPMS on the market from Jan 1st, 2019, and all cars in production will be installed with TPMS from Jan 1st, 2020. In China, almost all intermediate cars were installed with TPMS while very low TPMS installation in small cars. Therefore, there will be a huge increase in TPMS installation in small or mini-sized cars in the future. It is expected that it will be 40% or so installation for TPMS in mini-sized cars in factory-installed products, and almost 100% installation in 2020.
TPMS components: a high percentage of chips in the cost structure
TPMS chip accounts for half of the percentage of the material cost structure. TPMS materials include batteries, sensors, valves, MCU, radio modules, antennae, etc. Normally for cost, 46% for TPMS chip, 13% for battery, 20% for tire valve, labor cost, and other materials for 20%.
TPMS: Chinese TPMS chips are growing much
Some Chinese TPMS chips are already in production. NXP, Infineon, ST, and Renesas are the major players in the auto electronics industry. Auto become more and more electrized and intelligent, and chips and software are getting higher in proportion to auto manufacturing costs. Chinese auto chip manufacturers are gradually breaking foreign monopoly gradually, trying to nationalize each auto chip. Some chip manufacturers are starting the mass production of their own TPMS chips.
TPMS is an important auto safety product
TPMS is the abbreviation of tire pressure monitoring system, a tire pressure abnormal alert device. It has direct and indirect types.
Indirect type: wheel speed-based TPMS, which monitors tire pressure by checking the wheel speed difference through the wheel speed sensors of auto ABS. direct type: pressure sensor-based TPMS, which monitors tire pressure by the TPMS sensors installed on the tire valve or inside the tire and transmits the data out via RF433.92MHz.
Direct TPMS is the prevailing technology in the world currently. Indirect TPMS was adopted at the earliest due to its lower cost. But it is less stable and can only be monitored during driving. While the industry standard has been getting strict, direct TPMS has replaced indirect TPMS gradually and has become the prevailing TPMS technology. Therefore, direct TPMS has more advantages than indirect TPMS in product performance, product cost, industry standards, and Traffic regulations.
Direct TPMS structure:
The whole system consists of a transmitter and a receiver. TPMS sensors are installed on tires and the receiver is installed on the dashboard. There are three parts according to the functions:
● monitoring module: MEMS pressure sensor, temperature sensor, acceleration sensor. These sensors monitor tires and transmit data to the MCU after the circuit conversion of analog and digital data.
● Data processing module: the MCU with low frequency and radio frequency functions, RF transmitting part. MCU processes the data from the modulation module and transmits it to the receiver via the RF module.
● Receiver module: antenna, MCU display, etc. The receiver receives the data and notifies the drivers or managers.
TPMS working principle
How TPMS works
TPMS can improve vehicle safety comfort, and fuel economy. Abnormal tire pressure affects vehicle braking, tire blowout, or even traffic accidents. It also reduces the tire life and increases the suspension wear and fuel consumption. The TPMS can notify the driver to keep the tire pressure in good status. It strengthens the safety of the vehicle, lowers maintenance expenses, and increases fuel economy.
Hazard of abnormal tire pressure
TPMS is an auto safety system and sensing terminal for intelligent driving
For traditional autos, TPMS is the third legal safety product after the ABS and airbag. It’s the niche market for auto electronics. Auto electronics can be divided into two categories: electric control systems, more like tools for automobiles, which are used for intelligent driving and autopilot, including engine, chassis system(transmission system, driving system, steering system, brake system), and other auto parts; auto electronics system: more like a consumer product, is used for driving comfort. TPMS assists driving and improves driving comfort as a combination of auto tools and consumer products. According to the installation, TPMS can be classified into the driving system of chassis system.
Intelligence, connectivity, electrification and sharing are the future trends for automobiles. Massive sensors, data and sensing terminals are the based of intelligent and connectivity. Electrification would lead to a safer electric system. TPMS is not an independent system, but a sensing terminal for intelligence and connectivity. The sensors on auto tires are in two systems: speed sensor in ABS, pressure sensor and temperature sensor in TPMS. Tire would integrate deeper into the intelligence and connectivity as the core component of driving system. TPMS will play more roles as sensor on tire.
TPMS industry chain: upstream industry chain has chance of chips localization
The structure of TPMS industry chain: the chips suppliers of the upstream industry chain have the pricing power TPMS industry chain is divided into three main links: upstream participants are the suppliers of all kinds of materials. Midstream participants are the integrators and components suppliers, downstream participants communicate with end users on OEM or AM markets.
Upstream: The participants have pricing power due to the technology monopoly. TPMS materials include batteries, each sensor, MCU, radio module, antenna, etc. These TPMS materials are integrated as TPMS chips and batteries and sold to TPMS integrators. TPMS chip accounts for 46% or so of product cost. For TPMS chips, many suppliers can offer single components like sensors and MCU, but only a few that can offer turn-key solutions: Infineon, Freescale, GE, etc.
Midstream: No high technical threshold but market barriers exist
1. No high technical threshold: midstream participants are the integrators essentially, which source chips solutions and batteries from upstream companies make products, and get into the components supply system of automakers.
2. Barriers to entry exist for OEM supply systems. It requires at least 1- 2 years of cooperative development and forming a relatively stable relationship before new car models come into the market. The competitive landscape is relatively stable despite the long-time competition in the overseas markets. Localization is taking place gradually.
3. margins squeezed: upstream suppliers have pricing power, and downstream automakers have strong bargaining power. Therefore, the midstream integrators’ margins are squeezed much.
Downstream: automakers have strong bargaining power. Clients on the Pre-installed market are automakers. They will lower the prices if it occurs recessions. The aftermarket demands come from the maintenance and automobile modifications from end-users.
TPMS chips competitive landscape: domestic TPMS chips are expected to break the monopoly of foreign companies
Infineon Freescale and others share the global market. Only a few chip companies can offer turn-key solutions for TPMS chips: Infineon, Freescale, GE, and Melexis: the main integrators include Schrader, Pacific Industrial, ZT-TRW, which source chips from Infineon, Freescale, and GE. Domestic TPMS chips are better in some product parameters.
main cooperations of TPMS mid-stream and downstream globally on the OEM market
TPMS driving force: policy and technology and consumption upgrade driven The Auto industry is devoted to cost reduction and efficiency increase, energy saving, environmental protection, and safety. Safe and comfortable driving experience needs drive the auto consumption upgrade. TPMS can be of help in energy saving and efficiency increase and better driving comfort. The government sector offers policy encouragement, Three underlying driving forces: technology breakthroughs by Automakers and TPMS suppliers, consumption upgrades by end users, and government policy stimuli.
Auto safety and environmental protection are the starting point of government TPMS policy
● Reduce traffic accidents. Many traffic accidents in high way are involve vehicle tires. The tire pressure is the main reason for tire faults.
● Energy saving, environmental protection, increase of fuel economy. A series of policies in recent years include encouraging new energy automotive industry, putting forward the credits policy to punish automakers that produce high fuel-consumed vehicles, and implementing China 6 gaseous and fine particulate emissions limits, all of these are involved in energy-saving and environmental protection. Environmental protection and energy security are upgraded to the level of national strategies, and global automakers are spending huge amounts of money on conversion to new energy vehicles.
Stricter Domestic policies compared to overseas’
The overseas TPMS market is mature while the US has already implemented the TPMS policies in 2004. Domestic TPMS policies don’t involve commercial vehicles. There is the possibility that commercial vehicles would be forced to install the TPMS in the future.
Technology and needs are driven progressively
TPMS integration trends lead to higher prices. TPMS development history: from indirect TPMS to direct TPMS, from single pressure function in chip to multiple functions of the chip including pressure, temperature, voltage acceleration. In general, the TPMS chip will be more reliable and have more functions.
TPMS trends
TPMS needs: end users’ consumption upgrade will stimulate the aftermarket. TPMS was installed in luxury vehicles at first in the 1990s, and in high and middle-end cars gradually. The overseas TPMS policies implementation accelerates the popularity of TPMS in the OEM market. Even without the help of TPMS policies, TPMS still can increase the auto safety and fuel economy, and reduce the vehicles’ maintenance. It still can win more shares in the OEM market.
Quantity: quantity may be increased on the pre-installed market before 2020, and go to peak after-market after 2025.
OEM market: The TPMS installation amount is expected to go up in 2020. The automotive market is low in 2018, 2019. The TPMS policy that Government requires the mandatory installation in newly registered car models of 2019 has less influence on the increase of installation amount in 2019 considering the lower market and fewer new car models. All in-production cars are mandatorily installed with TPMS in 2020 according to the TPMS policies. Therefore, the increase in TPMS installation would occur possibly in 2020.
Aftermarket: the TPMS installation quantity is keeping up, reaching a peak in 2025. Current TPMS technology still doesn’t support wireless and without a battery. Each TPMS sensor needs a battery inside. Battery life determines the replacement cycle of TPMS. TPMS internal batteries can last 5 years or so. Therefore, new TPMS chips would be demanded much again due to replacement cycles after 5 years or so.
Price: lower when approaching the market at an early stage, and higher in the future with higher integration trends Factors: 1. TPMS chips localization: currently overseas TPMS chips companies are in a monopolistic position while newcomers will lower chips prices. 2. Higher integration trends will put unit prices higher, and increase profits.
Domestic TPMS chip factories need to make price compromises when they approach the TPMS market. According to a prospectus from a Chinese listed company, the TPMS chip import price was CNY18.3 in 2014, CNY16.2 in 2015, and CNY15.6 in 2016. The price would go down while the purchase quantity goes up. The companies that have large shipments are capable of getting lower prices. About the prices from the Chinese listed company, we think the expected domestic TPMS chip price to cut into the market would be CNY10/pc compared to overseas TPMS chips with stronger production capacity and better customer awareness.
Market size: it is expected to reach CNY 1.78 billion
We take passenger vehicles as the new vehicles’ sales of the M1 category on the pre-installed market in the current year, and private motor vehicles tenure as aftermarket sales. We estimate the TPMS chips shipment volume on 5 tires(1 spare tire) a vehicle.
Pre-installed market: pre-installed TPMS chips volume is much related to the passenger vehicles’ shipment volume. We expect that domestic passenger vehicle sales will drop 10% in 2019, and remain stable in 2020. The price would go up on annual year reduction and integration trends. We assume the price remain the same for 3 years, and the market size in 2020 would be CNY1.07 billion or so, the growth would reach a peak in 2020.
Aftermarket: according to industry research, TPMS installation is about 20% in 2018 based on the passengers’ vehicle tenure. end users’ awareness of TPMS and safety would promote the TPMS installation along with the mandatory installation of TPMS on vehicles on pre-installed market. We assume the TPMS installation is 25% in 2019, 30% in 2020 and 40% in 2021. The price would be kept same at CNY10/pc on both pre-installed market and aftermarket.
Generally, the market size would be about CNY1.78billion in 2020 with a rise of 78% comparing to 2019. And market size is about CNY2.38billion in 2021 with growth of 34%. TPMS replacement installation would go higher in 2025 due to the cycle replacement of 5-6 years TPMS use life.