According to the China Association Of Automobile Manufacturers (CAAM), vehicle sales grew 6.6% year-on-year (y-o-y) in March 2014, to 2.17mn units. The rather disappointing print chimes with the 7.9% y-o-y increase in passenger car sales in the same month, to 1.71mn units. This brings total auto sales for the first three months of the year to 5.92mn units, an increase of 9.2% y-o-y.
The significant fall in the March passenger car sales growth rate compared with February is certainly worrying and does suggest slowing momentum. While we highlighted the lacklustre performance of vehicle sales in January due to flagging demand for commercial vehicles (CVs), the weakness in passenger car demand highlights the broader challenge of boosting sales, which is facing the auto sector. This is very much in line with our sector slowdown view for 2014.
For now, we believe that the possibility of more cities imposing vehicle purchase restrictions in 2014 together with the resurgence of demand in the luxury segment will support sales. However, we acknowledge that risks remain firmly to the downside and should economic growth suffer a significant deceleration in the coming months, buyer sentiment will take a hit, causing auto sales to further slow down.
Passenger Car Segment Will Outperform
As the Chinese economy rebalances over the coming years to one where consumption makes up a larger share, the outperformance of the passenger car segment vis-a-vis the CV segment will persist. Over our 2014-2018 forecast period, we expect car sales to grow 7.8% a year on average versus 4.4% a year average growth for the CV segment. Therefore, we believe there is greater value in passenger car manufacturers, which are industry leaders, rather than pure play CV players.
Chinese motorbike and car manufacturer Chongqing Lifan Industry Group Co. plans to construct an electric vehicle (EV) plant in Jiyuan. The total investment into the factory, which will initially...
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