China passenger car sales in May mark first gain in two years

SHANGHAI — Vehicles sales in China have increased the past two months, recording 14.5% annual growth to 2.194 million units in May and stoking optimism in the world’s largest auto market, which had previously slumped due to the coronavirus pandemic.

The news reflects continued growth in the sector, that hit 4.4% in April.

The figure for May includes the first increase in passenger vehicles sales since June 2018, driven by government efforts to jump-start the sluggish economy, the China Association of Automobile Manufacturers revealed on Thursday. Passenger vehicles — which account for over three quarter of total sales — jumped 7% to 1.674 million vehicles.

Commercial vehicles sales continued to expand, rising 48% to 520,000 units.

Analysts at Shanghai’s Industrial Securities are optimistic on passenger vehicle sales for the full year based on stimulus policies in major cities across the country, saying, “The momentum created in the second quarter will be the turning point for growth.”

Rebates offered by local governments and deals from automakers helped fuel demand. BYD Auto gave rebates of up to 5,000 yuan last month in line with stimulus measures by the Pingshan district government in Shenzhen, where the automaker is located, according to local media Eastmoney.com

Foreign automakers like BMW also tried to cash in on pent-up demand by offering low interest rates and trade-in rebates of up to 24,000 yuan.

Shanghai Securities in a recent report maintained its “overweight” rating for the automotive sector, citing economic stimulus policy.

The rise in demand was expected as a result of weekslong lockdowns and consumer preferences for private transport in light of the pandemic.

“We are comparing against months that were already slowing,” said Tu Le, founder of Sino Auto Insights, an automotive consultancy in Beijing. Tu projects growth to continue, driven by aggressive promotions and new launches.

Market watchers outside China welcomed the news, hoping that new sales will pick up worldwide.

“China’s return to vehicle market growth is a portent of what should happen in other markets as the COVID-19 pandemic subsides later this year,” said David Leggett, an automotive analyst at GlobalData, a U.K.-based analytics company, which projected global light-vehicle sales to fall by 17% to 74 million units.

Even so, sales of new energy vehicles in China — a heavily subsidized subsector that includes electric vehicles, plug-in hybrids and fuel cell vehicles — declined by 23.5% to 82,000 units.

In April, Beijing extended for two years incentives and tax exemptions on NEVs that otherwise would have been phased out by year-end. These came after NEV sales continued to decline more than other vehicles in the first quarter, following their first annual drop of 4% to 1.2 million units in 2019.

The extension helped push sales of Tesla’s locally assembled Model 3 to an NEV-high of 11,095 units, according to the China Passenger Car Association. This marked a more than threefold increase compared to April, after the U.S. automaker reduced prices to qualify for incentives on cars costing less than 300,000 yuan ($42,433).

Some investors have been swayed by Volkswagen Group in China, which announced last month to strengthen what the German automaker called its “electrification strategy.” The group will spend 1 billion euros ($1.14 billion) to raise its stake in JAC Volkswagento to 75% from 50%. The joint venture produces electric cars and will acquire 50% of JAG — the parent of JAC — a state-owned automaker in Anhui Province.

Separately, Volkswagen is also investing about 1.1 billion euros for a 26% stake in Gotion, a Chinese car battery maker.