Some China carmakers look overseas as domestic demand stalls
BEIJING, Aug 22 — Chinese automakers have had their toughest first half since the global financial crisis and the rest of this year looks set to be tougher still as the world’s largest auto market sputters in a slowing economy.
State auto groups with strong foreign ties, such as domestic champion SAIC Motor Corp, can still deliver earnings growth, but others may find themselves locked in reverse gear, industry observers say. For some, exports, mostly to emerging markets such as Ukraine, Indonesia and Sri Lanka, may offer some relief from weak sales at home.
Today, Geely Automobile Holdings, whose parent owns the Swedish brand Volvo Car, posted an 8.7 per cent increase in first-half profit — but, while it sold nine per cent fewer cars in China, its exports trebled to 40,061 vehicles.
Spokesman Victor Yang said Hangzhou-based Geely aims to sell about 90,000 cars outside China this year, and will continue to chase export growth, with a forecast of 300,000 cars sold abroad by 2016. Total sales this year are seen at around 460,000 cars. Geely’s chairman and founder Li Shufu told Reuters earlier this year that he wants to sell as many cars overseas as he does in China.
“This is a tough year for all automakers, large or small. 2011 wasn’t so good either because (government stimulus) incentives were gone, but it’s much worse now as the economy is not doing so well,” said Zhang Xin, an analyst at Guotai Junan Securities. “It’s like a double whammy.”
China’s economy grew at its slowest pace in more than three years in April-June as demand at home and abroad slackened, confirming a downtrend that has full-year growth on course for its weakest in 13 years.
The China Association of Automobile Manufacturers is keeping to its forecast for a five to eight per cent rise in overall vehicle sales this year — a far cry from explosive growth of 46 per cent and 32 per cent in 2009 and 2010 respectively. January-July total vehicle sales rose just 3.6 per cent after anaemic growth of 2.5 per cent in 2011, setting China up for its slowest back-to-back years of growth since the late 1990s.
Like Geely, Great Wall Motor Co Ltd should hold up better than most as it has expanding export businesses, analysts say.
But Warren Buffett-backed BYD has warned its January-June earnings — due next week — could halve on weak car sales and losses in its solar energy business. The safety of its electric car was also called into question after an e6 taxi caught fire in a fatal accident in May even though a probe showed the lithium-ion phosphate battery that powers the car did not explode after the collision.
And FAW Car has predicted it could swing to as much as a 75 million yuan (RM37.5 million) first-half net loss.
SAIC, which makes cars in China in partnership with General Motors and Volkswagen AG, the two largest foreign automakers in the market, could still achieve double-digit earnings growth in the second quarter, according to forecasts by three analysts — still a far cry from recent growth spurred by Beijing’s stimulus measures. Earnings jumped by around a quarter last year when the Chinese economy appeared largely immune from the debt crisis seizing Europe.
Net income at Dongfeng Motor Group Co — which makes cars in partnership with Nissan Motor, Honda Motor and PSA Peugeot Citroen - is seen flat in the first half as it is exposed to a steep downturn in heavy truck sales.
Geely is the second-best performer in the sector this year among 53 large- and mid-cap autos firms globally, with its share price rising 62 per cent, Thomson Reuters StarMine data shows — though the stock fell 3.7 per cent today, in its biggest one-day drop in 12 weeks. BOCI analyst Huang Wenlong noted Geely received more in government subsidies than had been expected, suggesting sales may not have been as strong as first thought.
Among global automakers, BYD, Dongfeng, SAIC and Brilliance China have been among the worst performers this year.
Luxury price war
Even the popular German luxury brands have resorted to a price war this year as they look to hit ambitious sales targets in China — a move that may further cannibalise the sales and earnings of mass-market marques.
Buyers can drive home a brand new Toyota Corolla for 131,800 yuan, more than a third cheaper than two years ago. A Buick Excelle, ranked fourth on China’s top selling list, can be had for just 76,900 yuan, after a 23 per cent discount, according to cheshi.com, an industry website that tracks prices at more than 3,000 dealerships across China.
Both Toyota Motor and Nissan saw sales in China decline last month, and Changan Automobile Co blamed an estimated 44-49 per cent drop in its first-half earnings on a smaller contribution from its car venture with Ford Motor and Mazda Motor.
“There are lots of uncertainties ahead,” said John Zeng, Asia Pacific director for industry consultancy LMC Automotive. “The euro zone could continue to drag on the economy ... and the auto market could slow further if more cities start to restrict car sales.”
Guangzhou’s city government last month joined Shanghai, Beijing and Guiyang in capping car sales in an effort to ease chronic traffic congestion and pollution. Xian, an inland city in the northwest, was forced to back down from a similar move after a public outcry. Other cities said to have at least considered restricting car sales include Chengdu, Hangzhou and Dalian. — Reuters