China Car Sales Decline Slowing
The author is an analyst of NH Investment & Securities. He can be reached at soohong.cho@nhqv.com. -- Ed.
Chinese auto demand is recovering from the impact of Covid-19. However, the pace of Hyundai Motor Group's recovery has been relatively slow in China compared to that in other regions. In 2H20, Chinese xEV (EV/PHEV) market growth is predicted to accelerate on Tesla’s production capacity increase and a NEV credit quota hike.
China car sales -5.6% y-y in April; sales decline slowing
In April, Chinese auto sales totaled 1.43mn units (-5.6% y-y). Although a clear growth trend has yet to emerge, the pace of monthly decline (-78.4% y-y in February and -40.3% y-y in March) is slowing as Covid-19 enters a phase of easing in China.
Sales of xEVs (EVs/PHEVs) in April fell to about 60,000 units (-29.9% y-y), with the related portion of the overall automobile market coming to 4.2% (vs 5.6% in Apr 2019 and 5.3% in Mar 2020).
In April, sales of the Tesla Model 3, which began selling in Jan 2020, decreased to 3,635 units (vs 10,160 units in March; M/S of 6.1% in April). However, as production in April exceeded 10,000 units and new contracts are believed to be in good shape, we view this decline as resulting from a temporary suspension of purchasing in anticipation of a change in pricing policy. In late April, the Chinese government decided to extend its xEV subsidy policy for two years, limiting subsidies to locally made vehicles costing less than RMB300,000. In response, Tesla announced a reduction in sales prices in late April.
Although uncertainties related to Covid-19 linger, we believe the long-term growth trend of the Chinese xEV market remains valid, considering China’s xEV subsidy extension (two years), the start of full-fledged operations at Tesla’s Shanghai plant, and a hike to the new energy vehicle (NEV) credit quota.
HMG’s China recovery progressing slowly
In April, Hyundai Motor Company (HMC) and Kia Motors (Kia) sold 40,023 units (-13.1% y-y) and 15,204 units (-35.6% y-y), respectively, in China. In the Chinese market, HMC and Kia have actively resumed promotional activities, including the launch of both new car exchange offers and various customer care programs (including, for example, unemployment protection plans). However, it seems that improvement in competitiveness in China is progressing slowly compared to the pace of sales recovery in global auto markets such as the US.