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China's auto sales slump amid epidemic but recovery on track

Xinhua
China's auto sales and production have taken a hard hit from the novel coronavirus outbreak, but industry insiders expect a rebound in April.
Xinhua

China's auto sales and production have taken a hard hit from the novel coronavirus outbreak, but industry insiders expect a rebound in April if the epidemic is gradually brought under control.

The retail sales of passenger vehicles plunged 92 percent on an annual basis in the first 16 days of February, according to a report from the China Passenger Car Association.

The industry association attributed the sales fall to the delayed consumption demand due to the earlier start of the Lunar New Year holiday when consumers shop less, and the novel coronavirus outbreak which prevents residents from going out to public spaces.

The Chinese health authority Friday said it received reports of 889 new confirmed cases of novel coronavirus infection and 118 deaths on Thursday from 31 provincial-level regions and the Xinjiang Production and Construction Corps.

"The impact on the auto market is temporary," said the CPCA. "While the progress of the recovery relies on the measures taken by the government."

China will roll out more policies to stabilize the consumption of automobiles to mitigate the impact of the epidemic outbreak on its auto market, an official with the Ministry of Commerce said on Thursday.

All localities are encouraged to beef up efforts to promote the consumption of new energy vehicles, ease vehicle purchase restrictions and carry out automobile replacement, said the ministry.

In Foshan city in south China's Guangdong Province, customers will receive subsidies if they purchase locally registered vehicles complying with the "China VI" vehicle emission standards.

China's Ministry of Transport has decided to scrap all tolls across the country until the end of the epidemic prevention and control work to aid the smooth transportation of supplies and resumption of work. This move is also beneficial to reducing logistics costs and stimulating demand for cars, according to the CPCA.

First-time buyers might have a stronger desire to own private vehicles to shield themselves from the virus as they intend to avoid public spaces, said the CPCA.

The industry association estimated that auto sales are expected to rebound in April as pent-up demand unleashes if the epidemic is effectively contained then.

On the supply side, some carmakers and suppliers of auto parts in China have suspended production to contain the spread of the virus. The hardest-hit province of Hubei, home to multiple auto joint ventures, manufactured 2.24 million cars in 2019, accounting for 8.8 percent of the country's total output.

While the production halt risks disrupting the global supply chain, the impact will be relatively short-lived as China's adequate capacity will soon catch up to make up for the losses, according to an analysis by Great Wall Securities.

FAW-Volkswagen Automobile Co Ltd had resumed production at its four production bases across China as of Monday, and the carmaker said it will increase production efficiency to make up for the affected output.

The Tesla Shanghai gigafactory and its supplier also resumed operation last Monday. Tesla's executives said the temporary shutdown may slightly impact the company's profitability for Q1 this year, but it would "try its best to make up for the suspension when the epidemic takes a turn for the better."

Several other automakers, including Guangzhou Automobile Group, SAIC-GM-Wuling and BYD, are set to refit their production lines to make medical supplies such as face masks as shortages hamper the country's efforts to contain the epidemic.

Ensuring the nationwide resumption of production and the epidemic control efforts are mutually reinforcing in China's fight against the ongoing novel coronavirus outbreak, said a senior official of the National Development and Reform Commission.

Seen from the perspective of the whole year, the impact on the supply end will be limited, according to Great Wall Securities.

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