Auto pessimism could be over-revved in China
17/07/2019 03:33
(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)
By Katrina Hamlin
HONG KONG, July 17 (Reuters Breakingviews) - China’s auto
pessimism could be over-revved. A grim start to the year saw
sales slump by more than 10 percent compared with the first half
of 2018. Chaos reigned amidst new rules, while Beijing remained
reluctant to offer stimulus. But policy pressure is uneven, and
the worst could be past.
The latest numbers seem to imply a gloomy summer. Profit
warnings from local champion Geely 0175.HK and suppliers like
Johnson Electric 0179.HK and Sensiron SENSI.S blame weakness
in the world’s largest auto market for their woes. The country
is likely to see vehicle sales drop again this year,
undershooting earlier expectations for zero growth, according to
the China Association of Automobile Manufacturers.
Policymakers are partly responsible for the pain. Their
decision to end tax incentives for low-end cars suppressed
sales. Meanwhile, the haphazard application of new emissions
standards saw dealers struggling to shift swollen inventory of
older models, and a long wait for news on electric-vehicle
subsidies has hurt the likes of Nio NIO.N . To add insult to
injury, a generous stimulus plan was leaked and shared widely in
April, only to see hopes dashed when a pared-down package was
finally published in June.
Yet there is a case for cautious optimism. Should regulators
merely refrain from further drama, underlying demand could pick
up despite the broader economic slowdown and a protracted trade
war. The luxury segment, which was sheltered from the demise of
tax incentives, has defied the downturn. Higher-end marques Audi
NSUG.DE and Mercedes-Benz reported record sales in the first
quarter, while BMW BMWG.DE claimed double-digit growth in
China revenue.
Electric vehicles are another bright spot. Beijing has
devised a credit system, which rewards makers of cleaner cars,
and this month introduced even more ambitious sales targets for
green autos. Chinese battery giant Contemporary Amperex
Technology 300750.SZ on Friday flagged that net profit had
grown as much as 150% in the first half of the year, more than
expected.
Local bureaucrats can surprise on the upside, too. They may
even help buck up non-green and non-luxury autos: in May,
regional authorities eased limits on new licence plates of all
marques in the cities of Shenzhen and Guangzhou. Add all these
factors up, and the auto market’s doom and gloom can be
overstated.
On Twitter https://twitter.com/KatrinaHamlin
CONTEXT NEWS:
-Chinese battery giant Contemporary Amperex Technology on
July 12 said net profit had grown as much as 150% year-on-year
in the first half of 2019, more than expected.
- China sold 12.3 million vehicles in the first half of
2019, 12.4% less than a year earlier, according to the China
Association of Automobile Manufacturers, Reuters reported on
July 10. The country is likely to see vehicle sales drop again
this year as opposed to earlier expectations for zero growth,
the association said.
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(Editing by George Hay and Sharon Lam)
((katrina.hamlin@thomsonreuters.com; Reuters Messaging:
katrina.hamlin.thomsonreuters.com@reuters.net))