China car market heads for unprecedented second annual drop

3 min read
Chinese Cars

Car sales in China continued to decline in November, extending a historic slump and all but ensuring a second straight annual drop for the world’s biggest auto market.

Sales of sedans, sport utility vehicles, minivans and multipurpose vehicles fell 4.2% from a year earlier to 1.97 million units, the China Passenger Car Association said Monday.

The decline was the 17th in the past 18 months, with the only increase coming this June as dealers offered large discounts to clear inventory.

The Chinese market shrank last year for the first time in decades, leaving automakers with few growth regions as sales also wane in Europe and the U.S. The industry globally is suffering as trade tensions and tariffs raise costs, just as competition from ride-hailing and car-sharing services reduce the need for individual car ownership. In China, a reduction in government subsidies for the electric-vehicle sector has also contributed to a more recent pullback in that market as well.

A slowing economy has kept consumers away from car showrooms, particularly in areas outside China’s big cities where cheaper local brands are popular. That has prompted industry insiders to predict consolidation as weaker players get squeezed out by intensifying competition. Suzuki Motor Corp. pulled out of China in 2018 and Peugeot maker PSA Group said last month it plans to sell its 50% stake in a joint venture making DS brand cars in China.

The biggest global automakers such as Japan’s Toyota Motor Corp. and Germany’s BMW AG have weathered the downturn better, helped by demand for hybrid cars and premium vehicles. They are continuing to invest in China after pouring billions of dollars into setting up factories and sales networks in the country in recent decades.

Volkswagen AG and its Chinese partners will spend more than $4.4 billion next year to rev up electric-car production and add more SUVs, while Tesla Inc. is close to starting mass production at its new Shanghai plant, its first outside the U.S.

Electric Slowdown

Wholesales of new energy vehicles cars, including electric vehicles, fell 42% last month to 79,000 units, PCA said. The Chinese government has poured billions of yuan into the NEV sector and reiterated last week that electric cars remain a priority as it wants to combat pollution and reduce reliance on imported oil. Still, sales of cars running on electric motors have been falling since July as regulators reduced subsidies.

BAIC BluePark New Energy Technology Co., China’s biggest maker of pure electric cars, forecast a 2019 loss in its earnings update.

Warren Buffett-backed BYD Co. in October reported an 89% decline in third-quarter earnings and warned profit could fall as much as 43% this year. Unprofitable NIO Inc., which is traded in New York, has struggled to assuage concerns that it’s running short on cash.

Still, electric-car sales in China are forecast to rebound next year, according to BloombergNEF research. For the first nine months of 2020, it predicts sales of 912,000 electric vehicles, a 13% increase to from the year-earlier period.

“Potential cuts to subsidies at the beginning of 2020 are keeping the industry in limbo,” according to the report. “A shrinking market could force the government to give up its plans on cuts.”

Source: Financial Post – China Car Market Heads for Unprecedented Second Annual Drop

Tony Simon

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