Carmakers' profits skid in Q1

By Xie Jun Source:Global Times Published: 2019/5/5 21:20:45

Economic slowdown, maturing market hit demand among Chinese consumers

Since an industry sales glut that started in mid-2018, Chinese car companies, big or small, have been waging a war to outperform rivals.

Among the auto manufacturers that have released first-quarter results, almost all reported declining profits, pointing toward an industry downturn.

Experts told the Global Times that this is a natural process as China's car market becomes saturated and slows down.

Chongqing-based Changan Automobile Group said profit fell about 250 percent year-on-year to 2.096 billion yuan ($311 million), while revenue declined 20 percent to 16 billion yuan.

Shanghai-based SAIC Motor reported its first profit decline for the first quarter in 10 years. Profits fell 15 percent year-on-year to 8.25 billion yuan. In April, SAIC Motor said it sold about 1.53 million cars in the first quarter, down 15.88 percent year-on-year.

Hebei-based Great Wall Motors said first-quarter sales rose about 10 percent year-on-year to 283,842 vehicles, but profits fell 62.84 percent.

Some companies didn't make any profit. For example, the Henan-based Haima Motor Corp lost about 43.98 million yuan in the first quarter, narrowing from a year-earlier loss of 86.38 million yuan.

Jia Xinguang, an independent car industry analyst, said that the fundamental problem was downward economic pressure, which cut car consumption especially for medium- and low-grade models.

"Spending on cars has also been affected by increasing investment in real estate and stocks in recent months, as those two sectors grew more active," he said.

"But overall, there was no 'cliff-like drop' in the first quarter. The decline was just an extension of last year's market downturn," Jia said.

Zhang Zhiyong, founder of the Beijing-based car data service provider, said the decline was a "normal reflection" of increasingly weaker demand for cars, especially traditional gasoline-engine models, as the era of explosive growth ended.

"In the future, there may be periodic rebounds as a result of policy changes or population structural changes -- but the market won't boom again like the good old days," he told the Global Times.

Zhang said overseas brands are doing a little better than domestic ones, but the dilemma they face in China is the same, a shrinking demand from Chinese customers.

According to Zhang, many companies have announced plans to make strategic changes in China, trying to shift from being traditional carmakers to mobility providers by producing new-energy and intelligent cars. "Of course, there are those who only make 'verbal changes,' but some do take real action. I believe there will be companies that can swim upstream and stand out in the industry downturn."

For example, Shenzhen-based new-energy car company BYD Auto Co said first-quarter profits grew 631 percent on a yearly basis to 749.7 million yuan.

According to Jia, BYD is one of the domestic new-energy car frontruners, and its profitability is a natural result of its research and development as well as efforts to grasp the nascent market.

"But I don't think we should be overly optimistic about China's new-energy car sector just because of a few leaders like BYD. Overall, China's new-energy car companies haven't achieved mass marketing, nor have they completely shaken off dependence on government subsidies. The profit-making abilities of China's new-energy car companies are yet to be tested," Jia said.

Posted in: ECONOMY

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