By on October 13, 2020

With global economies suffering from pandemic-related lockdowns, there’s been just one question burning in the minds of economists: ‘When will Chinese automotive sales finally rebound so that the industry can once again feel comfortable enough to keep pouring resources into Central Asia?’

Now, apparently.

China’s car market just recorded its first quarter of year-over-year sales growth in two years, with last month’s volume rising 12.8 percent (vs 2019) to 2.57 million units, according to the China Passenger Car Association (CPCA). While its always wise to keep in mind that the nation has a history of obfuscating figures that might paint it in a bad light, CPCA has been slightly more consistent in its reporting than the China Association of Automobile Manufacturers (CAAM). Both outlets also have a tenancy to showcase blind optimism for the local economy, but there appears to have been good reason for that over the last five months.

General Motors likewise reported Chinese sales growing by 12 percent in the third quarter vs the same period a year earlier as German brands expressed their continued commitment to the market. That diminishes the probability that this is all hype drummed up by the Chinese Communist Party (CCP). But there may still be a sprinkle of economic witchcraft taking place.

China is betting the farm of electric vehicles and its automotive market has seemed to rise and fall by government decree. Whenever the CCP incentivizes EV sales, things start looking up. The inverse is true whenever subsidies are withdrawn  something we’ve pointed out on more than a few occasions, especially in response to government agencies buying up electric cars to help pad production figures. Ride-hailing and business fleets have also done their fair share, with industry leadership claiming individual drivers are starting to step up and take a stronger interest in EVs as subscription services help drive down the per-month cost of ownership (a sales tactic we’ve been hesitant to endorse).

There are reasons to be skeptical, however. Even though German brands appear happy to stick with the market for the long haul (Volkswagen remains the best-selling make in China), several other companies have quietly scaled back planned investments. Too much of China’s EV volume seems dependent on government approved fleet purchases with regular customers having a much harder time making the transition away from gasoline  which aren’t selling particular well as the CCP attempts to encourage electric sales. The Wall Street Journal had more in a recent market assessment:

As Chinese brands and gasoline-powered vehicles struggle to tempt consumers, “we can’t be too optimistic about the fourth quarter,” Cui Dongshu, the CPCA’s secretary-general, said Tuesday. He forecast year-over-year sales growth of between 5 [percent] and 8 [percent] for China in the October-to-December quarter.

The CPCA said auto makers’ sales of passenger cars to dealerships grew by 8.5 [percent] in September, while wholesale sales of new-energy vehicles, a category that includes electric cars, nearly doubled in September compared with a year earlier to more than 125,000 vehicles, marking the strongest rate of growth since April 2019. The group didn’t report retail figures for the category.

Tesla Inc. sold 11,329 Model 3s in China last month, a 4 [percent] drop from August, according to CPCA data. This month, the Palo Alto, Calif., electric car maker cut the starting price of its China-made Model 3 by 8 [percent] to about $37,000 and that of the Model S by 3 [percent] to about $109,000 to win back market share, posing a bigger threat to China’s gasoline-powered vehicles.

That’s absolutely fine with the CCP. As the world leader in battery production, China’s ideal scenario involves pushing other nations to go green. The State Council of the People’s Republic of China has even released a plan to ensure roughly 25 percent of national auto sales are of “new energy vehicles” by 2025. This proposal is supposed to work in tandem with President for Life Xi Jinping’s strategy of making China totally carbon neutral by 2060. While we doubtful the latter can be accomplished, it’s in the country’s best interest to try to get the rest of the globe to make similar promises is a clever strategy. Other nations have been working on perfecting the internal combustion engine for decades, whereas electric development is newer and offers a leveler playing field for China.

[Image: Xujun/Shutterstock]

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