Storm Clouds In China: Luxury Automotive Beware

Nov. 29, 2022 6:42 PM ETBAMXF, BMWYY, BYDDF, BYDDY, BYMOF, GM, LAAOF, LI, MBGAF, MBGYY, NIO, NIOIF, POAHF, POAHY, TSLA, VLKAF, VLKPF, VWAGY, VWAPY, XPEV, XPNGF15 Comments
Mike Smitka profile picture
Mike Smitka
324 Followers

Summary

  • Between the normal seasonal upturn and new stimulus policies, auto sales ought to be surging. Instead, October is down from July and below October 2020 levels. Data through November 20.
  • Of more concern to investors, NEVs actually fell in market share, and EV sales declined. The EV venture Weltmeister is in serious trouble.
  • Meanwhile, short-term headwinds include "zero covid" policies, declining real estate prices, and attendant bank and local government fiscal issues.
  • The bottom line: sell Chinese automotive stocks – particularly Tesla, BMW, Mercedes and VW – before the downturn gets fully priced in.

Green Energy Vehicles At 2022 Central China International Auto Show

Getty Images

­Introduction

It wasn't supposed to be like this.

To boost the economy, at the end of March, the Chinese government cut the sales tax for vehicles in half. Assorted local and provincial governments added their own measures, such as a cash-for-clunker

Chinese sales seasonality

Data from 车市扫描 reports at cpcaauto.com; author's calculations.

Sales seasonality, less cluttered

Data from 车市扫描 reports at cpcaauto.com; author's calculations.

2022 breaks the seasonality pattern

Data from 车市扫描 reports at cpcaauto.com; author's calculations.

Partial sales data, Nov 2022

Underlying data are from the weekly Chinese Auto Dealers Association sales reports; author's calculations.

Inventory levels, Chinese automotive retail

CPCA inventory reports, in Chinese

Inventory levels during 2017 peak sales year

CPCA inventory reports, in Chinese

rolling 12 month sales

Author's compilation from Chinese-language CADA reports

rolling 12 month sales, different scale

CADA weekly sales reports, in Chinese

Monthly sales and NEV sales

Author's database, compiled from 车主指南 and other sources.

Quarterly total sales and NEV sales

Author's database, compiled from 车主指南 and other sources.

SAIC MG car for sale in Philippines

Author's photo

Unique utility vehicle

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This article was written by

Mike Smitka profile picture
324 Followers
I'm a retired economist. Over the decades I focused on the auto industry and on the Japanese economy. I also taught a course on the Chinese economy for 30+ years. But I was also a banker and worked in factories, and for the past 28 years have visited suppliers for business case and engineering presentations on innovations, as a judge for the Automotive News PACE awards. As such, I've visited about 60 suppliers, in Korea, Japan, the US, Canada and France. (I've visited another 50 or so via other activities.) I'm also on the steering committee of the GERPISA consortium of auto industry researchers, and was on the planning committee for the June 2022 global conference in Detroit. I'm also active in the Industry Studies Association. I'm the co-author of Smitka and Warrian (2017), A Profile of the Global Auto Industry: Innovation and Dynamics, available as an eBook.I first lived in Tokyo in 1975, after graduating from Harvard with a degree in East Asian Studies. My econ PhD is from Yale; the Nobel Laureate Oliver Williamson was my dissertation chair. I've spent 7 years in Japan, and have spent 2 months or more in China, Korea, Germany and the Philippines. I read, write and speak Japanese, and read German and (a covid project) Chinese.My current research interests are technology in the automotive supply chain, and the Chinese industry. My investing is passive, via my university's TIAA retirement plan.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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