According to the China Association Of Automobile Manufacturers (CAAM), vehicle sales in June 2014 rose 5.2% year-on-year (y-o-y), to 1,845,800 units, bringing sales for H114 to 11,683,100 units, an increase of 8.4% y-o-y. It is important to note, however, that sales in June grew at the smallest y-o-y pace since March 2013 and were dragged down by the commercial vehicle (CV) segment, which contracted 19.7% y-o-y in the same month. While we are maintaining our passenger car sales forecast for 2014, we are downgrading our CV sales forecast due to the segment's poor performance year-to-date.
Economic Rebalancing Biting Into CV Demand
As fixed-asset investment slows and infrastructure spending cools (in part due to Beijing's reticence towards large-scale stimulus to prop up economic growth), it is only natural that demand for CVs will be hit, given their usage in the various Chinese industrial sectors. Despite having a downbeat outlook on the segment for some time ( see 'Passenger Car Sales To Bring In A Strong 2013', October 17 2013), the sharp y-o-y decline in CV sales in the past two months has been more pronounced than expected.
We have also downgraded our outlook over the five-year forecast period. We now forecast CV sales to grow at an average of 3.9% over the 2015-2018 period versus 4.5% previously. Anecdotal evidence suggests that there are plenty of trucks lying idle to wait for goods to be transported, which makes us believe that the current cutbacks in CV demand are likely to be structural rather than cyclical as the government remains determined to cut excess capacity in certain heavy industries.
Concurrently, we have revised our CV production forecasts over the 2014-2018 period downwards as reduced demand in the domestic market will lead to automakers curtailing their output.
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...
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