China Light Vehicle Sales Update
December 2019

Opportunities for Growth in 2020 Still Hold True

China’s Passenger Vehicle (PV) sales (i.e., wholesales) in October fell by 5% year-on-year (YoY) to 2.13 mn units, while the Light Commercial Vehicle (LCV) segment grew by 5% YoY to 0.31 mn units. The overall Light Vehicle (LV) market ended the month with a 3.8% YoY decline, on total sales of 2.44 mn units. November, meanwhile, saw a further deceleration in the rate of decline in the wholesale market.

PV production reached 2.13 mn units in November, in line with wholesale demand, but an improvement of 1.4% from the low base in the same month of 2018. LCV output rose by 13.1% to 0.32 mn units in the month. Overall LV production increased by 2.8% YoY in November, with build totaling 2.45 mn units. This marked the first month of positive growth in the production sector, following 15 consecutive months of decline since August 2018.

The November SAAR of LV sales was flat from October, at 26 mn units. Despite the lack of strong upward momentum in November, the market remained relatively stable.

A closer look at the PV segment reveals that the Car and MPV bodytypes recorded further double-digit declines in November. The SUV segment, however, posted a modest upturn of 3% in the month, which suggests that this previously popular bodytype may be back in favor with consumers. The recovery in SUV sales was largely driven by the Non-Premium and Premium sub-segments, where demand remains solid, thanks to the consumption upgrade trend, as well as robust performances by several newly launched models. Economy SUVs, on the other hand, continued to suffer. Sales were temporarily boosted by the purchase tax cut between October 2015 and December 2017, but the segment will need more time to recover and generate fresh demand now that the tax incentive has expired.

The CADA inventory index stood at 1.49 months at the end of November, 7.2% higher than in October and 22.4% lower than in the same month of 2018, with stock levels just below to the warning line of 1.5 months.

The relatively healthy level of dealership inventories reflects the fact that stocks are usually built up before Chinese New Year, a traditionally auspicious time for big-ticket purchases and typically one of the strongest sales periods for the overall PV market.

On the retail side, the latest insurance data show that around 1.74 mn domestically produced PVs were delivered to customers in November. Although this figure marks a decline of 2% when compared to November 2018, it is, nevertheless, an improvement on the double-digit declines seen over recent months.

If we break the data down by city tier, other positive signals emerge. Retail demand in the lower-tier cities improved. Tier 4 and 6 cities, meanwhile, posted declines of 3.6% and 2.5%, respectively, but the rate of decline slowed compared to the last few months and we even saw strong growth of around 10% in Tier 5 cities. It is worth noting that the crash in demand in the lower-tier cities was the chief factor behind the contraction in the retail market over the last two years. As the greatest beneficiaries of the purchase tax cut, these cities also suffered the biggest hit from the payback effect when the tax incentive was phased out and demand began to stabilize.

The Chinese and US governments have reached a “phase-one” deal to de-escalate the trade war. If this initial agreement leads to a faster resolution of the trade conflict than previously expected, it would give the market a much-needed confidence boost, particularly in Tier 2 cities, where exports account for a large proportion of the local economy. Demand in higher-tier cities would also begin to recover if tensions with the US were to subside.

One final factor to consider in the overall market is that demand for electrified vehicles is set to drop once the NEV subsidies are fully phased out. But despite this negative impetus, we believe that the impact of the other market dynamics outlined above will support overall demand, such that we continue to forecast a slight upturn in LV sales in 2020.

For further information contact Ms. Angela Chen
Phone +86 21 5283 3568


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