Overall growth in China's passenger vehicle segment is at just 1.6% in the first half of the year, indicating a major slowdown in the market.
IHS Markit perspective
- Significance: The growth in China's passenger vehicle segment relies on the SUV segment, which is still growing but at a far slower rate than in preceding years.
- Implications: Without significant policies to boost sales, the market is unlikely to be able to withstand the high base comparison of 2016 – automakers are aiming therefore to push exports, strengthen NEV development and enter segments such as the pick-up truck segment to gain traction in any growth spots within an overall slowing market.
- Outlook: IHS Markit continues to forecast a drop in sales in China in 2017, as the second half of the year is unlikely to lift passenger vehicle sales given the high volume and growth in the second half of 2016.
New vehicle sales in China have reached 2.222 million units in June, up 4.5% year on year (y/y) and lifting the growth in the first half of the year to 3.8% y/y at 13.34 million units, summary data from the China Association of Automobile Manufacturers (CAAM) show. In June, 2.167 million vehicles were produced in China, up 5.4% y/y and lifting the year to date (YTD) growth rate to 4.6% with 13.526 million vehicles produced.
CAAM's data refer to wholesale vehicle sales in China. The authoritative body also defines passenger vehicles (PVs) to include sedans, sport utility vehicles (SUVs), multi-purpose vehicles (MPVs) and cross type vehicles such as minibuses. All trucks and buses are categorised as commercial vehicles (CVs). The CAAM data only refer to vehicles produced in China, therefore no imports are listed in the data.
In June, PV sales in China reached 1.832 million units, up 2.3% y/y, while production reached 1.845 million units, up 3.7% y/y. On a YTD basis PV sales have reached 11.253 million, up 1.6% y/y while production volume has reached 11.843 million, up 3.2% y/y.
In June CV sales in China reached 340,000 units, up 18.4% y/y while production hit 323,000 units, up 16.4% y/y. On a YTD basis CV sales in China have risen 17.4% y/y to 2.1 million units, while production has reached 2.04 million, up 13.8% y/y.
Within the PV segment, growth was limited to the SUV segment. In June, total sedan sales hit 883,000 units, down 3.73% y/y. The SUV segment sold 741,000 units, up 15.66% y/y. The MPV segment slumped 3.9% y/y to 163,700 units in June, while the cross type vehicle segment dropped 22.34% y/y to 43,700 units.
On a YTD basis the PV segment again relied on the SUV segment. Sedan sales in the first six months hit 5.39 million units, down 3.17% y/y, while SUV sales rose 16.83% y/y to 4.5 million units. MPV sales fell 15.78% y/y to 1.015 million units, while cross type vehicle sales fell 25.28% y/y to 316,700 units.
Within the CV segment, bus production and sales are down 14% and 15.3% respectively in the YTD. Truck sales are up 22.6% y/y, and truck production is up 18.7% y/y in the first half of the year.
The new energy vehicle (NEV) segment is being boosted by policies and in the month of June total sales hit 59,000 units, up 33% y/y while production reached 65,000 units, up 43.4% y/y. Within this pure electric vehicle (EV) sales hit 48,000 units up 41.4% , while production has reached 54,000 units up 52.9% y/y. Meanwhile plug in hybrid electric vehicle (PHEV) sales have reached 11,000 units, up 5.3% with production around 11,000 units too, up 10.1% y/y.
On a YTD basis the NEV segment, which currently comprises only EVs and PHEVs in China, was up 14.4% y/y to 195,000 units while production stood at 212,000 units, up 19.7% y/y. Of this, pure EV sales hit 160,000 units, up 26.2% y/y and PHEV sales hit 35,000 units up 19.7% y/y.
Outlook and implications
The PV market is balancing precariously on SUV growth, but this growth itself is waning. In the first half of 2016 SUV growth was up 44.26% y/y. Now the segment is up by only 16.8%.
Last year was considered a bumper one in terms of vehicle sales and production in China, as the market benefited from the 50% cut in the new car purchase tax for vehicles with engines of 1.6 litres and under. This was brought in following a disastrous summer in 2015 when the market plummeted. Considered a pillar industry in China, the government was wary of letting market forces alone play their game in 2015 and therefore brought in the subsidy policy, which expired on 31 December 2016. Following this there is a marginal tax reduction for the 1.6-litre and smaller segment, with the new car purchase tax, which is generally 10% for vehicles in China, being brought down by 25% for the cars with engines of 1.6 litres and lower.
Overall the PV segment has risen only marginally in the first half of the year, by just 1.6% y/y. With the second half of the year looming, without any significant policy to raise growth in the market, the overall outlook is for a negative year. Therefore IHS Markit's current forecast for the year stands. We continue to believe that the market will not be able to rise in the second half of 2017 following a major increase in sales in the PV segment in the second half of 2016.
In the meantime, the government has begun to open up the pick-up truck segment. This segment has begun to grow as the authorities remove restrictions for these vehicles in major city centres, currently concentrating on the lower-tier cities which are provincial capitals. With this, the segment is boosting the overall CV segment within the CAAM data. CAAM includes pick-up trucks within its overall truck segment.
Meanwhile vehicle exports are once again growing. In June a total of 81,000 units of fully built vehicles were exported from China. This marked an annual increase of 18.8% y/y. Within this, PV exports rose 25.6% y/y to 54,000 units, while CV exports rose 7.2% y/y to 27,000 units, according to the CAAM summary.
A number of automakers have already reported growth in June, but while some are rising, others have dropped. Great Wall Motor, for example, has declined1.7% y/y in June to 64,471 units, while on a YTD basis the company has sold 460,743 units, up just 2.33% y/y. The automaker has relied too heavily on its H6 SUV which is now stumbling, with sales down 6.33% y/y in June, and down 5.7% y/y in the YTD. The new Wey brand has only sold 3,166 units of the W7 SUV in its first month on sale, not enough to help boost the automaker.
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