Vehicle sales in the world’s largest auto market spiked in double digits in May, extending April’s rebound. China’s auto sales for April grew 4.4% year over year to 2.07 million units, snapping a 21-month declining streak. According to China Association of Automobile Manufacturers (“CAAM”), auto sales in May increased 14.5% year over year to 2.19 million units.
Digging Deeper Into Sales Numbers
Sales of passenger cars rose 7% year over year in May to 1.67 million versus April’s 2.6% contraction. Growth in passenger cars were primarily driven by pent-up demand for SUVs and minivans, which increased 20% and 47% year over year, respectively, in May. With the coronavirus under control, government incentives have helped in boosting sales of the country’s sagging car market. Sales of commercial vehicles were up 48% year over year in May.
Per CAAM, passenger vehicle sales slid 27.4% year over year to 6.1 million units during the January-May period. Growth in April and May partly offset the huge decline in the first quarter on account of the COVID-19 pandemic, which had rattled the China auto market with shutdown of factories, less customer traffic at dealerships and supply-chain disruption. Sales slumped 19%, 80% and 43% year over year in January, February and March, respectively. During first-quarter 2020, China’s car sales plummeted 42% year over year as the pandemic pummeled demand and weakened consumer confidence.
Sales of battery-powered and gasoline-electric hybrid vehicles fell 23.5% year over year in May to 82,000 units. This marked the 11th straight month of sales decline in the segment. China’s largest EV maker BYD Co Ltd. BYDDY witnessed a sharp drop of around 48% year over year in May EV sales. However, NIO Inc. NIO achieved record monthly deliveries of 3,434 units in May. Sales skyrocketed 215.5% year over year on the back of strong demand of ES6 and ES8 models. Per China Passenger Car Association, the red-hot EV maker Tesla TSLA sold 11,095 Model 3 vehicles in China in the month of May, more than triple the volume sold in April. Tesla currently sports Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
For the first five months of the year, EV sales slumped 38.7% to 289,000. China’s EV market has been faltering since July 2019 due to policy reversals on government subsidies for new energy vehicles. While the subsidy cuts were intended to spur innovation, it has indeed taken a toll on EV sales.
Glimmer of Hope for China Auto Market: Here’s Why
Being the first country to emerge out of the deadly coronavirus, lockdown in many cities in China got lifted when other cities in the world were either in shutdown mode or were entering it. Business activities in China have returned to normalcy after the authorities relaxed travel restrictions and lockdowns. Companies are gradually ramping up vehicle production in the country.
Thanks to the coronavirus impact, people in the country now prefer private transportation and are increasingly opting for new car purchases. Use of public transportation in cities like Beijing and Shanghai has declined significantly from pre-COVID-19 times.
With the auto sector’s output being a key component of China’s GDP, the government has been ramping up stimulus measures for boosting auto sales. The measures include handing out cash subsidies to encourage people to purchase cars. The government also decided to extend subsidies and tax breaks for new energy vehicles such as electric or plug-in hybrid cars for another two years.
Various auto biggies including Volkswagen VWAGY, General Motors GM, Tesla, BMW AG BAMXF and Toyota TM are ramping up investments in the China EV market. Volkswagen recently agreed to make an investment of 2.1 billion euros (or $2.33 billion) in two China-based electric vehicle (EV) players. The German giant is raising its stake in a China-based EV joint venture with JAC Motors. Notably, Volkswagen aims to sell 1.5 million NEVs — including electric cars and plug-in hybrid — per year in China by 2025.
A couple of days back, Toyota also entered into a JV with five Chinese OEMs to design low-cost, efficient fuel-cell systems and related components needed for the widespread adoption of fuel-cell electric vehicles for commercial application. In February, the Japan-based auto biggie announced plans to collaborate with China-based automobile firm FAW Group to build a new electric vehicle plant at Tianjin in China. The plant is expected to produce 200,000 battery-only, plug-in hybrid and fuel-cell vehicles every year. Toyota plans to complete construction and start manufacturing in the plant by early 2020.
Amid persistently weak demand in the West (including the United States and Europe), Moody’s credit agency expects faster recovery in the China auto market than the U.S. and European counterparts. Last month, the agency cut its forecast of global auto sales but retained 2020 sales estimates for China. While worldwide auto sales are anticipated to decline 20% in 2020 amid coronavirus woes, sales in China are expected to fall 10% year over year and increase 2.5% in 2021.
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