The Chinese language auto market is crashing. Information from the Chinese language Affiliation of Auto Producers present the passenger automotive market there contracted 6.9% in August and has fallen 11.zero% for the year-to-date interval. August 2019 marked the 14th consecutive decline for the Chinese language auto market, an necessary landmark for analysts, as Chinese language automotive gross sales may very well be mentioned to be “going up in opposition to straightforward comparisons,” i.e. durations during which these figures registered a decline in 2018 versus 2017.
Information geekery apart, there are 4 key takeaways from the sharp contraction in Chinese language auto gross sales.
The commerce warfare is having its supposed results. I attempt to keep away from writing about politics, however the inescapable conclusion from poor Chinese language shopper knowledge is that shopper confidence has been impacted by the commerce warfare, and shopper wallets appear to be feeling the affect of it, as nicely.
This gross sales hunch isn’t a short lived phenomenon. Mr Shi Jianhua, CAAM senior official, was quoted in a Reuters article at present:
“The gross sales within the second half of the 12 months ought to turn out to be higher, however we aren’t positive to what extent the gross sales could be….Maybe the following three years can be at a low or small damaging progress. We’re all wanting ahead to gross sales selecting up, however it’s regular if we don’t get that.”
Within the auto business non permanent slowdowns might be offset with seasonal plant shutdowns, particularly in the summertime, however an prolonged despair, the kind of which Mr. Shi referred, would result in plant closings, not idlings. Weaker gamers are all the time the primary to really feel it—Peugeot and Fiat have primarily ended Chinese language manufacturing in 2019 (though Fiat is retaining the Jeep model)—however finally even the sturdy, native gamers must decrease capability. This is able to have a devastating affect on the general Chinese language economic system owing to the auto business’s multifaceted affect on just about each sector of the buyer and industrial economic system.
The electrical car revolution isn’t occurring in China. In a wave of ideologically-inspired agitprop from retailers corresponding to Bloomberg, 2019 was heralded because the 12 months of the battery electrical car (BEV) in China. In this Forbes article I used to be, I imagine, the primary commentator to dispute that, and three months later, the numbers have borne out my damaging thesis. Based on the CAAM knowledge, gross sales of NEVs (BEVs and hybrids) fell 15.7% in August after falling four.7% in July. Gross sales of NEV had risen for 18 months in a row earlier than mid-2019.
Biased analysts might yammer on concerning the poor air high quality in Beijing (I’ve skilled that firsthand,) melting glaciers and the Chinese language authorities’s need for cleaner vehicles, however 27 years of following the auto business have taught me one factor: when shoppers cease shopping for vehicles they cease shopping for all fashions, no matter propulsion system.
Shares of firms that rely on the Chinese language shopper to purchase vehicles, particularly electrical ones—like Tesla and NIO—usually are not enticing right here. Elon Musk has been credited with “betting the corporate” on Tesla’s strikes to take over associated firm SolarCity, introduce the Mannequin three and now to construct Gigafactory three in Shanghai. Nonetheless, that is completely the worst time up to now decade to be introducing a newly-produced mannequin to the Chinese language market, particularly an electrical one. Early adopters bought imported Mannequin 3s regardless of the tariff penalties, however for Tesla to maintain Giga three operating at something close to full capability, native patrons should buy lower-end fashions of the Mannequin three. Even these tariff-free fashions will retail at a big worth premium to the common Chinese language automotive, nevertheless. The CAAM figures present that that’s an unlikely end result within the present setting.
Additional bolstering that argument is the truth that NIO gross sales have slowed to a trickle in China, with solely 673 ES6 fashions and 164 ES8 fashions delivered in July. The market simply isn’t there for Tesla in China. I’ll by no means have the ability to persuade diehard Teslaphiles of that truth, I’m conscious. As they bid up TSLA shares in current buying and selling—though these shares are nonetheless down greater than 15% from their degree of 1 12 months in the past—I’ll fortunately take the opposite facet of that commerce for my new buying and selling car, Excelsior Capital Companions.