14 Jun

China’s Car Sales Aren’t Just Falling Anymore, They’re Crumbling

WRITTEN BY Mohit Oberoi, CFA

China’s car sales

Car sales in China, the world’s biggest automotive market, fell year-over-year in 2018 for the first time in more than two decades. Automotive sales have contracted in China for 11 consecutive months now. The slowdown only seems to be deepening, and last month, China’s car sales fell a whopping 16.4%, which happens to be the biggest monthly decline according to Reuters. China’s car sales had fallen 14.6% in April as well.

Chinese government

The Chinese government announced a slew of measures earlier this month to support the country’s sagging car sales. However, the measures fell short of what markets were expecting. US automakers like Ford (F) and General Motors (GM) are battling sagging car sales in the US markets also. However, while US car sales have come off their 2016 highs, they aren’t falling as sharply as they are in China. The new energy vehicle (or NEV) segment, which had seen strong growth in China until last year has also shown signs of moderation, and sales grew a mere 1.8% in May. Last year, NEV sales rose 62%. Falling growth rates in China’s NEV sales are negative for companies like Tesla and Nio.

Price action

Meanwhile, automakers’ price movement has been mixed this year. While Ford (F) has seen an upwards price action of 36%, General Motors (GM) is up only about 10%. General Motors has higher exposure to China as compared to Ford. However, electric vehicle makers have sagged this year. Tesla (TSLA) and NIO (NIO) have seen a downwards price action of 36% and 60% year-to-date.

Now, the automotive sector is among the biggest metal end users. Falling car sales in the world’s biggest car market is negative for metal demand.

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