China Association of Automotive Manufacturers released May shipment data that showed a flat y/y growth in consolidated sales. Passenger vehicle sales remained weak, growing only 1.2% while commercial vehicle sales extended their decline, down 8% y/y. The weakness in the Chinese economy is impacting commercial vehicle sales and this is starting to flow through to the passenger vehicle segment that continues to decelerate. I remain bullish on companies with the SUV segment, where demand remains robust, and on Japanese brands that are known for their reliability. My top picks within the Chinese auto space remain Great Wall Motor (OTCPK:GWLLY)(OTCPK:GWLLF), Guangzhou Automotive ("GAC") (OTCPK:GNZUF) and Geely (OTCPK:GELYY)(OTCPK:GELYF).
Total shipments declined 0.4% y/y to 1.9m units with PV up 1.2% to 1.6m and CV down 8% to 295k. SUV sales remain robust, up 44%, reaching a historical high penetration rate of 29%. The near-term SUV demand remains strong as consumers continue to be attracted to the compact models and prior sedan owners upgrading to SUVs. One of the drivers behind the higher SUV sales could be domestic OEMs launching affordable models that are priced under $20k. Great Wall is the biggest beneficiary of this trend with a SUV sales growth of +52% y/y to 54.7k that was nothing short of spectacular after posting 32% growth in the prior month. The strong demand for GWM's SUVs further makes the company a leading contender for the global SUV market share as Chinese auto OEMs shift their focus to the export market to compete against US, Japanese and Korean rivals.
Domestic brand share slipped to 40% but has seen signs of stabilization since last November. Although sedan sales remain weak due to consumer migration towards SUVs, OEMs have been ramping up on their SUV sales to offset the sedan weakness, and it appears this is playing out.
As for the international brands, Japanese cars remain a favorite and have been gaining market share in recent months with 18% share as of May. Honda (NYSE:HMC) and Toyota (NYSE:TM) led the growth with +32% and +13% y/y rate. The new SUV sales from Honda XR and Vezel has been beneficial and the new CR-V has proven to be very popular. However, Nissan (OTCPK:NSANY) (OTCPK:NSANF) lagged in sales compared with its peers with no growth for the month.
I remain positive on Great Wall, Guangzhou Auto and Geely. The OEMs are uniquely positioned in their respective areas and will do well in the current market environment.
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