“2019 will be the worst year for the Chinese auto market since the 1990s.”

Editor’s note: This article is from “ future automotive Daily “(micro-channel public number ID: auto-time), author: Xiao Cheng Yi.

Author | Cheng Hao

Edit | Liang Chen

HSBC recently lowered its forecast for China’s auto market sales in 2019, from a 2.6% increase to a 5.9% drop. They believe that although policy stimulus may have a positive impact on boosting overall demand, its positive impact on demand growth is only 5%-7%.

HSBC believes that the auto market will not pick up in the second half of 2019, and the auto market recovery will be the earliest in 2020.

HSBC: China's auto market will not pick up in the second half of 2019

Table 1: HSBC forecasting before and after comparison

The new measures failed to pull back the sales volume

In 2018, Chinese car sales fell for the first time in 28 years. In the first half of 2019, the implementation of the National Sixth Standard and the policy of retreating new energy subsidies led to a wave of car sales promotion and snapping up, which caused the automobile market to recover briefly in June.

But after the end of inventory and the resumption of new energy subsidies, the auto market has returned to the trend of continued decline. The China Automobile Association also lowered its annual sales forecast of 5% to 26.68 million.

Full Auto Data Decision Service Provider Wilson It is also believed that the Chinese auto market will enter a short-term adjustment phase from July to August, and will gradually pick up after September. As a result of its data testing, the cumulative retail sales of the domestic passenger vehicle market in the first half of 2019 was 10.627 million units, an increase of 2.1% year-on-year.

Future Auto Daily (ID: auto-time) has sorted out multiple brokerage opinionsIt is believed that due to factors such as double-point policy and consumption power, China’s new energy vehicle sales will return to growth in the second half of the year.

But HSBC believes that these forecasts underestimate the impact of policy preferences, and there will be no “bottoming rebound” in the second half of 2019. In 2017, the preferential purchase tax policy was adopted. The passengers with a displacement of 1.6 liters and below were charged at a rate of 7.5% for the whole year, and the original 10% tax rate was restored on January 1, 2018. This move caused sales to rise sharply in 2017, and sales were significantly reduced in 2018 due to the cancellation of preferential policies and macroeconomic impact.

HSBC said that with the introduction of new incentives such as double points, it should have seen better growth in 2019 than in 2018, but it has not seen this sign yet, so it is pessimistic about its growth trend.

HSBC: China's auto market will not pick up in the second half of 2019

Table 2: Comparison of sales data for 2017-2019

China’s population structure supports a slower growth trajectory

The recovery rate of China’s auto sales growth may be lower than expected. In the long run, the overall auto demand growth will also slow down. HSBC believes that this is based on China’s demographic structure.

HSBC believes that the Dink and the empty nest (40-65 years old) are the main consumers of the Chinese market in the future. HSBC is making money from the Chinese population at – The rise of China’s empty nesters” wrote that about 47 million Chinese families earn more than $50,000 a year. In the next 20 years, this population will be in line with the United States and is expected to reach 222 million in 2038. Middle-aged people (40-64 years old) account for about 40% of this high-income class, mostly empty-nest families or Dink families.

The above found that when a child leaves home, 77% of empty nesters have an increase in disposable income, and 82% say they are willing to buy better quality products. However, it is worth noting that the car does not occupy a high position in the purchase intention, so HSBC believes that consumer demand is not enough to promote steam.Car sales rebounded strongly in the second half of the year.

HSBC: China's auto market will not pick up in the second half of 2019

Long-term optimism

Although HSBC has a negative view in the short term (1~2 years), it emphasizes that it is very optimistic about the prospects of China’s auto industry in the long run (3~5 years).

Since China has invested heavily in electric vehicle technology in the past 10 years, China has now achieved a leading position in the global automotive electrification trend. IHS (US oil and gas industry service company) predicts that the market share of new energy vehicles will rise from 5% in 2018 to more than 25% in 2026.

But before this, car companies need to experience the pain of short-term losses. There are three reasons:

  • In order to achieve the “double points” standard, car companies need to rapidly increase the output of new energy vehicles;

  • Because of the high cost of batteries and the low utilization rate of new energy vehicles, the profit margin of new energy vehicles is small, and even a loss-making car is needed;

  • The purchase of the same class car, the new energy car is much higher than the fuel price (estimated 25-50%).

The large price gap between new energy vehicles and fuel vehicles will further reduce consumer demand due to subsidies. At present, the government’s maximum subsidy for new energy vehicles is 25,000 yuan, which is 50% lower than the 2018 subsidy program.

HSBC: China's auto market will not pick up in the second half of 2019

However, in a 2019 China auto industry survey by HSBC, Chinese auto consumers are essentially more interested in buying new energy vehicles.

  • 36% of Chinese car buyers will consider buying new energy vehicles at the next car purchase, which is higher than the current penetration rate of new energy vehicles;

  • 95% of respondents will buy new energy vehicles with incentives.

HSBC: China's auto market will not pick up in the second half of 2019

The results also show that price is the biggest bottleneck for large-scale promotion of new energy vehicles.

But with advances in technology, increased capacity utilization and lower battery costs will reduce the cost of producing electric vehicles and make them more competitive with respect to fuel vehicles.

Therefore, HSBC expects that the profit margin of automakers will remain under pressure before the first half of 2020, and then it will bottom out due to the increase in electrification. By then, the automaker’s operating margin will only see a longer-term recovery.

(I am the future car daily reporter Cheng Wei, pay attention to intelligent network connection, automatic driving and sharing travel dynamics, welcome to exchange at any time. Please add WeChat tuanzi_C, add please note name, company, position.)

HSBC: China's auto market will not pick up in the second half of 2019