New vehicle sales in China rose 2% year on year (y/y) last month, and October marks the month when sport utility vehicle volume sales have overtaken sedan sales in the country.
IHS Markit Perspective
- Significance: The growth in the Chinese vehicle market is in pockets, with high growth in the heavy truck segment and growth in the sport utility vehicle segment boosting the overall market.
- Implications: IHS Markit forecasts light-vehicle sales to rise 1% in China this year, while medium and heavy commercial vehicle sales are forecast to rise by as much as 33% in 2017.
- Outlook: The passenger vehicle market is struggling to grow across all segments without the government stimulus measure which boosted sales in 2016.
The vehicle market in China has risen in October, according to summary data from the China Association of Automobile Manufacturers (CAAM), which show that a total of 2.704 million vehicles were sold in the month, up 2% year on year (y/y). Meanwhile, production reached 2.6 million units, up just 0.7% y/y.
The main growth this month has come from the commercial vehicle (CV) segment. The CV segment witnessed growth of 14.8% y/y in October, with a total of 351,000 units sold, while production volume rose 26.6% y/y to 379,000 units. On a year-to-date (YTD) basis, the CV segment has now grown 17.2% y/y to 3.325 million units, the CAAM data show. Production in January‒October has reached 3.404 million units, up 16.9% y/y.
However, the passenger vehicle (PV) segment has the higher volume of vehicles produced and sold in the country, but currently has far lower growth rates than the CV segment. In October, a total of 2.352 million PVs were sold in China, marking an increase of 0.4% y/y, while production hit 2.255 million units, up just 0.4% y/y. In the YTD, a total of 19.5 million vehicles have been produced and sold in China, up 2.3% y/y and 2.1% y/y respectively.
Within the PV segment, the sedan segment has now declined, with sales in October reaching just 1.017 million units, down 5.42% y/y. Sales of sport utility vehicles (SUVs) are up 13.94% y/y with 1.02 million units sold, marking higher volume sales than sedans in the month in China. Meanwhile, multipurpose vehicle (MPV) sales hit 189,800 units, down 18.13% y/y, and sales of cross-type vehicles (minibuses) were down 24.16% y/y to 34,800 units in the month.
On a YTD basis, the sedan segment continues to be the highest volume segment with sales of 9.45 million units, but down 1.93% y/y. The SUV segment is up 15.76% y/y to 7.98 million units. The MPV segment has sold a total of 1.67 million units, down 17.17% y/y, while sales of cross-type vehicles are down 25.35% y/y to 453,900 units.
Outlook and implications
The vehicle market in China is witnessing some pockets of growth, but the growth is not currently being shared across segments or indeed across automakers. There has been a notable jump in recent months in the CV segment and this stems from the truck segment. The CAAM summary data only highlight that truck sales have jumped by around 21% y/y so far this year.
Other segments seeing growth in China include the new energy vehicle (NEV) market, which continues to be subsidised by the government, helping to boost sales. In October, total NEV sales in China reached 91,000 units, up 106.7% y/y. Meanwhile, production of NEVs in the month hit 92,000 units, up 85.9% y/y. Within this, pure electric vehicle (EV) sales hit 77,000 units, up 95.8% y/y, while plug-in hybrid electric vehicle (PHEV) sales reached 14,000 units, up 194% y/y, according to the CAAM.
On a YTD basis, NEV sales have hit 490,000 units, up 45.4% y/y, while production has reached 514,000 units, up 45.7% y/y. Of the total, pure EV sales hit 402,000 units, up 55.9% y/y, while PHEV sales hit 88,000 units, up 11.2% y/y.
It is important to note that the high growth in the NEV segment in the month is due to the low growth in the same month last year, when the government suspended incentives due to investigations of fraud in the NEV segment coming to light. In October 2016, the NEV market in China witnessed growth of just 8.1% y/y, with just 44,000 NEVs sold. Of these, sales of pure battery EVs hit 39,000 units, up 19.7% y/y, while a total of 44,000 EVs were produced, up 28% y/y. PHEVs accounted for a total of 5,000 units of both sales and production, down 39% y/y.
Overall, the PV market is witnessing a slowdown in growth due to the lack of the stimulus measure that helped boost sales considerably in the preceding years. The 50% cut in the new-car purchase tax for vehicles with 1.6-litre or smaller engines ran from 1 October 2015 to 31 December 2016. It has been replaced by a 25% cut in the new-car purchase tax, but this having far less of an impact than its predecessor.
In October, sales of PVs with 1.6-litre or smaller engines hit 1.637 million units, accounting for 69.6% of the PV segment, but a decrease of 2.5% y/y. In January‒October, sales of vehicles with small engines hit 13.336 million units, down 2% y/y and accounting for 83.4% of the PV market, down 2.9 percentage points.
Meanwhile, exports from China hit 88,000 units in October, up 42.2% y/y. Of these, PV exports hit 63,000 units, up 42.9% y/y, while CV exports hit 26,000 units, up 40.3% y/y. In the YTD, a total of 715,000 vehicles have been exported from China, marking a 29.8% y/y increase. Of these, PV exports have reached 497,000 units, up 36.5% y/y, while CV exports have hit 218,000 units, up 14.2% y/y.
Current IHS Markit forecasts show LV sales in China rising 1% y/y to 27.85 million units in 2017. Of these, PV sales are expected to rise 3.3% y/y to 23.8 million units, while LCV sales will decline 10.7% y/y to 4.04 million units. It should be noted that within the LCV segment, the decline is mainly in the minibus segment, while the pick-up truck segment is witnessing growth in China. IHS Markit's medium and heavy commercial vehicle forecasts estimate a 33% y/y increase in sales this year in China.
The reasons vary for the jump in the CV segment, but the main factors include the solid infrastructure investment claimed under the Belt and Road initiative, as well as the push for cleaner emission vehicles in the CV segment. For example, legislation introduced on 1 July 2017 stipulated that diesel vehicles have to conform with China's Level 5 emission regulations, with new more stringent regulations enforcing Level 6 to come into force in two years' time.
In the PV segment, there has been sporadic growth with a number of larger automakers reporting sales growth in October while some others have not been so fortunate.
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