Breakingviews: Zooming in on car sales will hit China’s growth limit

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HONG KONG, Oct 20 (Reuters Breakingviews) – Automakers are reaching China’s growth limit. The industry achieved four consecutive months of double-digit growth in September, when shipments reached 2.3 million, up 33% from a year earlier, according to the China Association of Automobile Manufacturers. But temporary government incentives have greased sales, which could boost demand.

Some recent purchases represent pent-up demand after months of lockdown. Buyers were also taking advantage of new policies: Beijing extended tax exemptions for electric cars in August, shortly after halving car purchase taxes for low-end gasoline consumers.

Stimulus doesn’t always mean a bumpy ride. In the United States, a 2009 so-called Cash for Clunkers program, where drivers gave up older engines in exchange for subsidized newer models, managed to reinvigorate sales without hurting the months that followed. However, in China, underlying demand appears weak. Smoothing the year-to-date data, total sales were up 14% from a low base. Purchases of traditional engines, which account for two-thirds of the market, are down a quarter since the start of the year, making life difficult for brands such as Volkswagen (VOWG_p.DE) – the biggest the world’s automotive market accounted for a third of its deliveries last year.

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When the incentives expire, the cars could follow a route similar to Chinese commercial vehicles. A combination of new regulations and Covid-19 stimulus encouraged buyers to upgrade in 2020. Battery-powered designs were particularly popular. But after a wave of buying, truckers have tightened their purse strings: Sales have fallen by a third in the first nine months of 2022.

There are already signs of stress: Sales to retail buyers grew much more slowly than sales to dealers in September, according to Chinese broker China Merchants Bank International, suggesting ordinary consumers are less inclined to splurge and that unwanted inventory could accumulate. And while EV sales for local brands such as BYD (1211.HK), (002594.SZ), Guangzhou Automobile Group (601238.SS) and Geely Automobile (0175.HK) are growing rapidly, many old favorites are not. it’s going so well. With a few exceptions, notably Tesla (TSLA.O), Chinese drivers are also less enthusiastic about foreign badges.

The trend is particularly striking in the high-end sector, usually a stronghold in difficult times for foreign manufacturers. Fewer buyers are considering brands such as Jaguar Land Rover from Tata Motor (TAMO.NS), Cadillac from General Motors (GM.N) and even German brands like BMW (BMWG.DE) and Audi, according to a Bernstein’s September Report. It was the first time enthusiasm for foreign luxury names has waned since researchers began their investigation in 2015. Dangerous roads await automakers in China.

Truck stories: China’s commercial vehicle sales boom proved to be short-lived
Battery-powered: Strong EV sales in China mask slower shipments of traditional motors

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(The author is a Reuters Breakingviews columnist. The views expressed are her own.)

BACKGROUND NEWS

Retail passenger car sales in China rose 33.2 percent in September from a year earlier to 2.3 million, according to data released by the China Association of Automobile Manufacturers on Oct. 11.

September sales of new energy passenger vehicles, which include pure electric vehicles, plug-in hybrids and hydrogen fuel cell vehicles, were up 98.3% from a year earlier, data shows. of CAAM.

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Editing by Antony Currie and Thomas Shum

Our standards: The Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and non-partisanship by principles of trust.

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