IHS Markit expects light-duty vehicles sales in China this year
to decline by around 6 percent from 2018. Electric vehicle sales
remain a bright spot but not enough to offset sales declines
overall, new analysis says
China’s light vehicle (LV) sales fell nearly 10 percent in June
2019 from prior year—the 12th consecutive month sales
declined—casting new doubts on what has been the world’s biggest
growth engine for auto sales, a recent analysis by business
information provider IHS Markit (NYSE: INFO) says.
Total LV sales in China over the past 12 months (July 2018-June
2019) were 25,396,063, down more than 10 percent from the prior
12-month period. Sales in the United States during the same stretch
were 17,149,780, a decrease of 1.5 percent from the previous 12
months.
China’s auto sales downturn began in mid-2018 and the country
closed out that year with an annual decline in LV sales for the
first time this century.
The Mobility and Energy Future analysis explores what may be
behind falling Chinese auto sales. It asks, does the recent stretch
of monthly declines represent a weak period, reflecting economic
factors and the U.S.-China “trade war,” or a structural shift
toward a “new normal” of lower sales?
“One of the major axioms of the global automobile industry, that
China will continue to be a growth engine of world auto sales, is
no longer the case,” said Daniel Yergin, vice chairman, IHS Markit
and chair of Mobility and Energy Future project. “Whether declining
LV sales in China is a blip in a multidecade upward trajectory or
the beginning of a “new normal” of slower—and at times
negative—growth, this is the key question.”
Should the decline in auto sales be more protracted than it is
now, it would likely prompt a fundamental reassessment of
automakers’ strategies, according to the analysis. As it is, the
slowdown has already unsettled a global auto industry that has been
geared to high growth in China.
A new Mobility and Energy Future report from IHS Markit,
entitled China’s Auto Sales: Why Have They Fallen As Much as They
Have? identifies a mix of macroeconomic and auto industry-specific
factors that have contributed to the China’s auto sales slowdown—a
slowdown that has been surprisingly consistent across all of
China’s provinces and despite continued economic growth.
“Recent sales trends point to a decoupling of car sales and
economic growth in China,” said Nigel Griffiths, chief automotive
strategist, IHS Markit. “This is a fundamental shift since the two
have been strongly correlated up this point.”
Among the factors contributing to the sales downturn:
- Less availability of auto loans – Since spring 2018, the
Chinese government has been clamping down on the shadow banking
system, including peer-to-peer lending platforms. China’s car
finance market is traditionally restrictive, with high deposit
requirements for car loans.
- Dealer destocking – Particularly since January 2019,
dealers have been attempting to lower stock levels. This is a
normal adjustment in mature markets. But it is a relatively new
business reality for Chinese dealers.
- Accelerated transition to China 6 emission
standards-compliant vehicles – Just over half of the Chinese
market by sales volume has opted to introduce China 6 emission
standards (similar to Euro 6 vehicle emissions standards) well
ahead of the July 2020 national deadline. The accelerated
transition is distorting the market, with a temporary effect of
pushing back factory sales to the dealer network.
- Tax policy changes – Previous cuts to the sales tax on
smaller-engine cars “pulled forward” some sales that would have
otherwise been made in 2018 and beyond.
- Growth of ride hailing – IHS Markit estimates that the
number of rides rose 28 percent in 2018 and similar growth is
expected in 2019. Chinese car sales for 2019 are expected to be
300,000 units lower than would have been the case if these new
mobility options were not available.
- Trade War – Recent escalations in the U.S.-China
trade fight could add to the declines, according to the analysis.
In May the United States ratcheted up tariffs on $200 billion of
Chinese imports from 10 percent to 25 percent. IHS Markit now
expects U.S. tariffs on China to result in 500,000 fewer sales of
light-duty vehicles (LVs) in China than would otherwise occur
during 2020.
The one bright spot amid the downturn has been electric vehicles
(EVs), the analysis says. New registrations of EVs (defined as
battery electric vehicles [BEVs] and plug-in hybrid electric
vehicles [PHEVs]) in China rose at a monthly average of 85 percent
during July 2018-March 2019 compared to year-earlier period.
However, EV sales are not enough to offset the significant declines
in internal combustion engine vehicles.
“The continued strength of EV sales in China is likely largely
the result of supportive government policies, including subsidies
and a production mandate for new energy vehicles,” said Elena
Pravettoni, senior economist, IHS Markit. ”But EVs still remain a
small fraction of the total Chinese market.”
New registrations of EVs for Q1 2019 were 222,602—less than 4
percent of the China’s total car sales in that period, the IHS
Markit analysis shows.
IHS Markit does expect LV sales in China to eventually stabilize
and return to positive growth in the coming future, with average
annual gains of about 3 percent in 2020-2025 even when accounting
for continued deceleration of gross domestic product growth. By
comparison, annual gains averaged 7 percent from 2011-2017.
“This is a substantial correction but the expectation still is
that some short-term market distortions will clear up as the
contributing factors dissipate,” said Jeff Meyer, director, IHS
Markit. “Recent data on final consumer demand is at last indicating
that the market may be at or nearing a bottom. But should the
decline be more protracted, it could prompt a fundamental strategic
reassessment by automakers for what, up to now, has been the
world’s biggest growth engine for auto sales.”
Note to editors: Light vehicles refers to cars, SUVs and light
trucks
For media inquiries, please contact Jeff Marn (Energy),
jeff.marn@ihsmarkit.com or Michelle Culver (Automotive),
michelle.culver@ihsmarkit.com
About IHS Markit
(www.ihsmarkit.com)
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