China, the world’s largest automotive market, has more bad news for automakers. The auto sales slump in the country refuses to die down. Car sales in China fell for the first time in more than two decades in 2018, and the downturn is continuing well into 2019. In August, car sales in China fell for the 14th time in the last 15 months.
China’s auto sales fell about 10% YoY in August
According to Xinhua, the CPCA (China Passenger Car Association) reported that Chinese vehicle sales came in at 1.564 million units in August, down 9.9% YoY (year-over-year) and 5.4% month-over-month. This decline followed YoY declines of 9.6% and 4.3%, respectively, in June and July.
Domestic weakness and trade war take a toll on the Chinese auto market
There are several reasons for the current slump in the Chinese auto market. At a time when domestic demand is weakening, the US-China trade war is intensifying that pain. The impact of the trade war is also visible in the related indexes. Year-to-date, the iShares MSCI China ETF (MCHI) and the iShares China Large-Cap ETF (FXI) have returned 10.8% and -1.0%, respectively. In contrast, the S&P 500 (SPY) has risen 19.3% in the same period.
China’s efforts to stop the auto slowdown
China has unveiled several measures to stop the auto slowdown. The latest is its loosening of car purchasing restrictions to rein in weakening domestic demand. You can read China Mulls Relaxing Auto Sales Curbs: Who Benefits? for more on this topic. However, as of now, it hasn’t achieved much in terms of boosting consumption.
China’s auto weakness is hurting automakers
This prolonged downturn in the world’s largest auto market is bringing increased pain for automakers. US automakers, which are also battling weaker demand conditions at home, have made huge bets on China. After reaping the rewards for a few years, these automakers are now bearing the brunt of the trade war from both sides. On August 23, China announced that it would enforce tariffs on an additional $75 billion worth of US goods. The move included the resumption of 25% tariffs on US autos and 5% tariffs on US auto components starting on December 15. If these tariffs go ahead as scheduled, foreign automakers, including Ford (F) and General Motors (GM), will be in for even more pain. Last year, Ford’s Chinese sales fell 14.3%, while General Motors’ sales fell 9.8% YoY.
Tesla increased prices in China
Tesla (TSLA) increased the prices of its cars in China in August to offset the Chinese yuan’s volatility. It might have to hike prices again if the tariffs go into effect. However, Tesla should benefit from the opening of its China Gigafactory by the end of 2019, which should offset some of the tariff increases. Tesla has also received an exemption from a 10% purchase tax in China, which should help it maintain its prices there. Read China Did for Tesla What Trump Didn’t for more info.
China’s domestic automakers are also under increased pressure due to the slowdown in the sector. China’s biggest auto company, SAIC Motor Corp, reported declining sales during the first eight months of the year.