An NEV manufacturing line in Southwest China's Chongqing Municipality Photo: VCG

China's passenger car sales dropped 38 percent in January, with sales of new-energy vehicles (NEVs) falling 6.3 percent, data from the China Passenger Car Association (CPCA) showed on Wednesday. Demand across the Chinese market weakened after the tax cut on combustion engine cars and subsidies on NEVs expired, the Reuters reported.

The sharp drop in auto sales in China in January was the result of a complex set of factors. Sales were mainly dragged down by seasonal factors and are expected to pick up in the coming months. It is too early to say that demand will weaken this year.

First, Chinese people celebrated a full week of the Lunar New Year holidays during January, making it a quieter month compared with the previous years. Second, the end of NEV subsidies at the end of 2022 made consumers choose to buy before the expiration date. In December 2022, sales of NEVs surged by 90 percent. The seasonal decline in auto sales in China's auto market should not be over-interpreted.

Although the sales decline was slightly lower than market expectations, the industry and companies had prejudged the situation and made necessary preparations. For instance, German auto manufacturer Volkswagen said in January that the first quarter will certainly be a bit more difficult in comparison to the rest of the year and they will take measures to offset the influences.

Cui Dongshu, secretary general of CPCA Wednesday predicted that February is the real start-up month of the auto market this year. The quiet consumer market will present huge new investment and new consumption opportunities, and the demand in the fuel vehicle market recovery will pick up momentum.

In fact, according to auto dealers across the country, the number of consumers watching and choosing cars during Spring Festival significantly exceeded expectations. With the recovery of China's economy and the introduction of more support measures, the recovery of the auto market will accelerate.

Excluding seasonal factors, China's auto market is in a strong position, and it will remain an important market for global auto manufacturers. Although the Chinese auto market is facing the pressure of weakening demand this year, with the support of economic fundamentals and rebound, industry associations and companies are cautiously optimistic in the industry and in particularly confident in the growth in NEV market.

In 2022, China's NEV sales have reached new highs. According to data from the CPCA, passenger car market retail was 20.7 million units in 2022, an increase of about 550,000 units from 20.15 million units in 2021, a year-on-year increase of 1.8 percent.

It should be pointed out that the record high of China's auto sales in 2022 was achieved even under multiple pressures such as the impact of the epidemic that was worse than expectations and the pressure of supply chain disruptions. Considering that these negative factors will be removed in 2023, and the Chinese economy will usher in a strong rebound this year, the Chinese auto market will experience growth on recovery.

The China Association of Automobile Manufacturers recently predicted that in 2023, China's total auto sales will reach 27.6 million, a year-on-year increase of 3 percent. Among these numbers, sales of NEVs are expected to reach nine million, a year-on-year increase of 35 percent.

According to Bloomberg, Volkswagen expects to achieve recovery growth in the Chinese auto market as supply chain pressures and the epidemic ease. On January 16, Ralf Brandstaetter, chairman and CEO of Volkswagen Group China, said that it is expected that the sales volume of the Chinese passenger car market will increase by 4-5 percent in 2023, reaching 23 million vehicles.

While growth will accelerate, foreign automakers are facing stronger competition from local Chinese manufacturers. In this regard, to maintain and expand their market share, foreign automakers need to step up efforts in meeting an evolving trend in China's auto industry and consumption.

The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn