Biz / Auto

Consulting firm predicts auto sales slowdown

Hu Yumo
Report from AlixPartners says that rising house prices, especially in tier 2-4 cities, are leaving Chinese consumers with less money to buy vehicles.
Hu Yumo

China’s auto sales are estimated to fell about 8 percent this year due to decreased demand and rising house prices, according to a report by consulting firm AlixPartners.

It forecasts a significant drop compared with 2018 with weak consumer confidence and increased housing costs leaving less money to spend on cars. The company also estimates that overall auto sales in China will increase a little in 2020 compared with 2019. In the long term, the auto market will see a gradual increase, it said.

In terms of short-term market decline, the consulting firm said there were several reasons, including macro-economic factors and weak market sentiment. In small and medium-sized Chinese cities, more disposable income has been diverted to housing from vehicle purchases. 

AlixPartners said house prices had seen a rapid increase in tier 2-4 cities in China. Lack of affordability is affecting vehicle sales, especially in these cities which have generated the majority of sales growth in the past years.

There was serious overcapacity in China's auto industry last year with dealer inventory high. The report noted that auto dealers are facing increasing inventory risks with the overall automotive market slowdown.

Despite the slowing overall market, China's new-energy vehicle sales growth accelerated in 2018 and is expected to reach 2 million units in 2020, the firm said. This is powered by government support and improved public charging infrastructure.

The firm estimated that sales of electric vehicles will reach 1.7 million units in 2019 with over 100 electric car models expected to be launched on the market. Most of electric vehicle sales in China come from Chinese brands. To meet the government policy, international original equipment manufacturers are introducing new-energy vehicle models in 2019 and 2020 and their market share is expected to grow.

Chinese new-energy vehicle startups have raised around US$18 billion since 2014, with more than 50 companies entering the market.

Stephen Dyer, managing director of AlixPartners’ Shanghai office, said: “We are still optimistic about the long-term momentum of new-energy vehicles in China, given the government’s ambitious goals for clean energy and consumers’ overwhelmingly positive attitude toward new mobility technology. However, Chinese electric vehicle market players will face significant near-term challenges due to high battery costs and falling demand as government subsidies go away. We expect significant industry-wide consolidation and increasing pressure to export over the next few years to gain economies of scale.”

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