China's September Passenger Vehicle Sales See Decline Amid Export Growth

New data from the China Passenger Car Association (CPCA) indicates a substantial downturn in China's domestic car-buying season. September passenger-vehicle retail sales decreased by 28% compared to the previous year, reaching 1.62 million vehicles. This marks the twelfth consecutive month of year-on-year decline.

Despite the annual drop, sales did show a 5% increase from August figures. The CPCA report highlighted that electric cars and plug-in hybrids constituted 67% of passenger car sales in September. However, sales of these new energy vehicles (NEVs) also fell by 17% year-on-year, totalling 1.08 million units.

Shifting Market Dynamics

The CPCA report noted that the overall sales volume was under considerable annual pressure, with limited month-on-month recovery. A significant structural differentiation was observed, characterised by an accelerated contraction in fuel vehicle sales and resilient leadership from new energy vehicles. High oil prices were identified as a factor accelerating the shift towards 'oil-electric substitution'.

Manufacturers found relief in export markets. Overseas passenger vehicle shipments, which include knock-down kits, saw a substantial increase of 73.7%, reaching 917,000 units. Exports now account for 36% of manufacturers' sales, an increase from 19% a year earlier. The CPCA reported that exports represent over half of sales for some auto manufacturers, with a growing number approaching 70%.

Challenges and Outlook

The sustainability of export demand faces potential challenges, as expectations emerged regarding Europe possibly capping Chinese hybrid vehicle imports at 350,000 per year. These vehicles currently remain banned in the US market.

Domestically, the CPCA also pointed to rising memory and chip prices, driven by Artificial Intelligence (AI) and tight supply, as contributing to a slower increase in new energy vehicle sales. Industry inventory levels remained low, with high oil prices notably impacting fuel vehicles. Dealers reportedly adopted a more cautious approach to purchasing new cars, and the traditional 'Golden September and Silver October' peak season effect was significantly weaker than in previous years, leading to what the CPCA described as "significant survival pressure and a lack of confidence among dealers".

Despite these challenges, the CPCA suggested that the current market downturn is a temporary phenomenon, resulting from a combination of short-term policy disruptions and a high comparison base, rather than an indication that the fundamentals of car ownership have peaked.