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Ben Westcott

It’s a boom time for China’s carmakers, as companies give notice of surging profits, but an analyst says the party could be over as early as next year.
In the past week, Chinese carmakers Geely and BYD announced they had substantially revised up their expected 2015 profits.
Geely said it expected a 57 per cent growth in year-on-year earnings, while electric car manufacturer BYD said net profit could jump up to 557 per cent.
About 2.36 million passengers vehicles, including minibuses, were sold in mainland China in December, up about 16.9 per cent year on year.
A surge in carmaker profits was not unexpected – a stimulus policy introduced by the central government in September cut the 10 per cent purchase tax by half, boosting sales of passengers vehicles in the fourth quarter by 19 per cent year on year.
In addition to the tax cut, reports indicate the government may bring in further stimulus measures if the industry requires a further boost,
Subsidies for rural Chinese who purchase a passenger vehicle have been hinted at by the government since last month.
It’s more like pulling demand from the future to the present time, it’s enticing people to buy during the period of the policy which means we’ll be looking for much slower growth after these expire
Benjamin Lo, Nomura China
Car sector analysts are predicting high sales growth this year on the back of last year’s tax cuts. Nomura is forecasting 7.9 per cent year-on-year growth, while Jefferies is even more bullish, predicting 10 per cent growth.
“We believe increasing car sales is not only important to maintaining employment, but is exactly the kind of stimulus with positive knock-on effects in China’s efforts to rebalance towards a consumption-led economy,” Jefferies auto analyst Zhi Aik Yeo said in a report.
But while the outlook may seem rosy, Nomura China auto analyst Benjamin Lo said government measures might cause a slump in demand in 2017.
“These policies do have time limits, it doesn’t run indefinitely,” he said. “It’s more like pulling demand from the future to the present time, it’s enticing people to buy during the period of the policy which means we’ll be looking for much slower growth after these expire.”
Lo said Nomura was forecasting sales growth of just 1.8 per cent next year, compared with the 7.9 per cent growth predicted for this year.
In addition, growth in the middle quarters of this year was expected to soften following a strong opening quarter.
“We think the purchase tax cut’s impact will be more visible at the beginning and the end of the year,” Lo said. “In the second and third quarters you’d see minimal impact ... this is part of the uncertainty.”
The performance of China’s automotive sector was tied to the strong performance of several manufacturers, who saw double-digit growth, compared with slight drops for their competitors.
Japan’s top four car manufacturers met their Chinese sales targets last year, but Toyota saw sales fall 2.4 per cent year on year in December.
European car brands did not fare much better during the month, with BMW sales down by 5.6 per cent and Audi’s off 3.8 per cent.
US carmakers performed far better, along with local brands. General Motors saw a sales boost of 14 per cent year on year in December while Ford rocketed 27 per cent.
Meanwhile Mercedes continued to surge, with mainland sales in December up 29 per cent year on year.
“Domestic brands that have been either those with bigger SUV exposure or those with new model launches coinciding with the announcement of tax cuts, with new models in the showroom, are the ones who have done well,” Lo said.


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Tax cuts sparks surge in China car sales but good times might not last, says analyst

Car frames wrapped in plastics are seen placed outside a car factory at an industrial complex in Beijing, China, January 18, 2016. Picture taken January 18. REUTERS/Kim Kyung-Hoon

Mercedes’ mainland sales soared 29 per cent year on year last month. Photo: Reuters

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