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Chinese car market: Recovery after slump?

Chinese economic growth slowed at the end of 2018. The slump in the Chinese car market played a major role in this. However, this collapse does not reflect a lack of purchasing power or consumer sentiment. It was largely the result of a temporary tax cut from late 2015 to late 2017, which temporarily increased demand. In 2018, car sales in China fell for the first time since 1990.

Nevertheless, luxury car models are doing well in China. German carmakers in particular are benefiting from this trend and actually increased their sales in China, contrary to the general downward trend. BMW (including Mini) saw sales rise by around 8%, Audi and Mercedes Benz by 11% each and Porsche by 12%. VW’s sales fell slightly (by around 2%), though it remains the highest seller in China. Almost 50% of VW’s worldwide sales come from China.

VW Jetta becomes own brand in China

Thanks to its particular success in China, VW is now even turning its notchback version of the Golf, Jetta, into a separate brand for the country. The launch of a sedan and two SUVs is planned for the third quarter of 2019. The German carmaker has not yet announced official sales prices, but prices between €10,000 and €15,000 are expected. The goal is to appeal to the target group of young Chinese from the growing middle class. VW is also looking to capitalize on the growing popularity of SUVs.

Domestic car manufacturers are also benefiting from this trend. According to the British market research and forecast specialist LMC Automotive, 2018 SUVs accounted for almost 60% of vehicle sales for Zheijiang Geely Holding Group in China. Geely climbed from sixth place to fourth place in terms of market share, behind GM (third), Shanghai Automotive Industry Corporation (incl. SAIC-GM-Wuling Automobile) (second) and VW (first).

Chinese car market to become greener

But despite SUVs’ increasing popularity, new-energy vehicles (NEVs) are the sales engine of the industry. According to the China Passenger Car Association (CPCA), more than 1 million NEVs were sold in 2018, 88.5% more than the previous year.

China is committed to green mobility by supporting NEV development. In 2018, the country lifted restrictions on foreign investment in China’s automotive industry and lifted the limits on foreign shares for manufacturers of new energy vehicles.

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As a result, U.S. technology group Tesla Inc. will manufacture its electric Model 3 in China. Construction recently began on its new factory in Shanghai. Manufacturing in China will help reduce transportation and customs costs.

China car market: recovery expected

Despite the economic uncertainty caused by the ongoing trade conflict between the U.S. and China, experts expect the Chinese car market to recover. LMC Automotive is forecasting an increase in sales of vehicles under 6 tons, of around 1%, to just over 28 million units. Expected government action, such as increased investment and tax cuts for individuals and businesses, would again encourage people to spend more according to LMC Automotive.

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