New Age Vehicles set for record growth in China

China’s Association of Automobile Manufacturers (CAAM) expects NEV sales to touch at least 1.6 million units in 2019.

On Monday, China top automobile industry association stated, carmakers in the country are likely to face fiercer competition in 2019. Its statement comes in the wake of China’s auto market witnessing its biggest decline in more than two decades.

With no let down in China’s trade war with the United States, Britain’s biggest automaker Jaguar Land Rover, in recent days, has already flagged caution vis-a-vis its China sales in 2019. Chinese automakers, including Geely, have also taken a hit from Beijing’s trade war.

In December 2018, car sales in China were down by 13% – 6 months of straight decline; annual car sales in China were down by 2.8% to 28.1 million, against a forecast of 3%, said China’s Association of Automobile Manufacturers (CAAM).

This is the first time China’s auto market has contracted since the 1990s.

According to Shi Jianhua, a senior official at CAAM, the country’s car market “still faces relatively large pressures in the short-term”. Apart from the trade war, another reason that has been attributred to the contraction is the phasing out of purchase tax cuts on smaller cars.

Weakness in the car market is likely to persist across 2019 with CAAM forecasting sales of 28.1 million vehicles for this year as well. Other government and industry bodies have forecast a 0% to -2% growth for this industry.

According to analysts, China’s promise to boost spending as well as growing demand for new energy vehicles (NEVs) could bring some respite to the industry. Despite dismal performance by global carmakers in China, including that of Ford’s which saw its sales shrink by 37% Geely and Toyota Motor, the sales of NEV have jumped by 61.7% to 1.3 million units in 2018, said CAAM said. CAAM expects NEV sales to touch 1.6 million in 2019.

As per LMC Automotive analyst Alan Kang, the auto sector could witness a resurgence in China since Beijing is likely to reintroduce purchase tax cuts on smaller cars in 2019. This could prompt consumers to not put on hold their buying decisions.

Other analysts however paint a more sombre picture given the growth of China’s economy this year. Economic data for December 2018 is expected to show that China’s economy grew at around 6.6% in 2018 – its weakest since 1990.

According to sources familiar with the strategy of policy makers, Beijing is planning to set a target of 6% to 6.5% for 2019.

“We should notice the big uncertainties among macro economy and trade tensions, which hit the auto market in China last year and may happen again this year,” said Yale Zhang, head of consultancy AutoForesight.

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