China's passenger car market may change hands in 2019, with new energy market redefined, predicts Geishi Research Institute

The boss of a domestic passenger car may change hands, Zero-sum game exacerbates growth slowdown in luxury cars, But the profitability of joint ventures to improve the far-reaching impact of the product down two, the contribution of third-tier cities to the automobile market has been enhanced with weak subsidies, Double Points System Redefines New Energy Market Pattern More "compliant" SUVs to appear This year and next Expansion of SUV products will help it continue to expand market share The "Automobile to the Countryside" policy will ease pressure in 2019, according to the China Association of Automobile Manufacturers. In December 2018, the production and sales volume of domestic passenger vehicles were 2.055 million and 2.233 million, respectively, and the annual cumulative production and sales volume were 23.529 million and 23.710 million, respectively, representing a year-on-year decrease of-5.2% and-4.1%, respectively. Meanwhile, since August 2018, car companies have been cutting production to reduce corporate inventories. According to Gregorian statistics, domestic passenger vehicle inventories decreased by approximately 53,000 vehicles at the end of 2018 compared to the beginning of 2018, but remained above the end of 2016 level. Figure 1: Monthly Inventory and Accumulated Inventory of Automobile Enterprises-Data Source of Domestic Passenger Vehicles: CAAA, GEOS Research Institute, Volkswagen Group continued to be the No. 1 seller of domestic passenger vehicles, with cumulative sales of 4.119 million vehicles in the whole year, up 2.5% year-on-year. GM Group, GMAC-SAIC Wuling, Geely Group and Renault-Nissan-Mitsubishi alliance ranked second to fifth respectively. In terms of growth, only 14 auto sales groups have registered positive growth this year, of which seven are autonomous and seven are joint ventures. Surprisingly, the top five growth rates were attributable to autonomous car companies, with the exception of e-cafes and low perceived causal factors Beyond that, SAIC, BYD and Geely grew by more than 21%, particularly in the sluggish car market. There are winners and losers in the market, The overall sales performance of auto companies this year can be described as dismal, with the exception of 14 auto companies that have achieved positive growth, the 34 other auto sales groups (with the exception of new entrants in 2018) all recorded declines of varying degrees, down on average 19% from 2017, including top auto companies such as GM, Great Wall, GM Wuling and Changan. At the same time, the large-scale fall of autonomous car companies has also reduced the proportion of autonomous car companies in the domestic passenger car market from 43.8% in 2017 to 42.3% in 2018. Figure 2: Auto Sales Group Domestic Passenger Vehicle Sales Growth Rate Data Source: SAIC, GEOS Research Institute Arrangement Domestic Passenger Vehicle Sales One Brother Struggle intensifies, SAIC Volkswagen faces the challenge of FAW-VW Benefit from the improvement of its product line and the introduction of SUV, SAIC Volkswagen sales volume for five consecutive years to maintain the first place in the country. Although it remains number one in 2018, sales have been challenged by FAW-Volkswagen, its peer group, since the second half of the year, with the gap narrowing sharply to less than 5,000 vehicles from 40,000 in the first half. The main reason is because FAW-Volkswagen in the SUV product launch and volume. With the continued expansion of FAW-Volkswagen SUV products and the formal launch of the EBO project (Jetta brand) in 2019, there will be a certain amount of additional increment for FAW-Volkswagen. On the contrary, SAIC-Volkswagen has recently been exposed to the "pressure store" wind The wave could affect sales for the full year 2019 to a certain extent. A full-scale push into new energy will be a big event for Volkswagen in 2019, North and South Volkswagen has launched and will launch more new energy vehicles. Geshi expects that the total sales volume of new energy vehicles of North and South Volkswagen (excluding Jianghuai Volkswagen) in 2019 will reach more than 140,000. Among them, SAIC Volkswagen will lead FAW-VW in new energy due to its early market entry and regional market advantages, which makes the final sales volume ranking uncertain. The growth rate of luxury cars will continue to slow down and is expected to enter the growth range of unit number. Although the overall performance of domestic luxury cars will be strong in 2018, the growth rate will also decline from 22.3% in 2016-2017 to 16.5% in 2017-2018 (Note: Statistics exclude DS brands). At present, the echelon situation of domestic luxury brands is gradually clear, and BBA consolidates its first echelon position in the Chinese market because of its brand advantages; Cadillac, Volvo and Chery Jaguar Land Rover gained more market share in the process of accelerating localization to form the second echelon, but the internal competition has also become more intense, as evidenced by the collapse of the Land Rover brand in 2018; Infiniti and Acura, two Japanese luxury brands, have not been on a smooth path in China, performing well below expectations. In the competition with first-and second-tier luxury brands and joint ventures, even if such brands have product advantages, their brand and price disadvantages will become obstacles to their development in China. In 2019, we welcomed Lincoln, an American heavyweight from Ford, to our home-grown luxury segment. Looking ahead, Lincoln will continue to produce four domestically produced car lines and corresponding derivatives of electric vehicles between 2019 and 2022. Gesellschaft predicted that large-scale domestication and emphasis on the Chinese market would allow Lincoln to significantly improve his sales performance in China, hoping to squeeze into the second tier of the camp to seize market share of competitors. In the medium term, Cadillac and Volvo, both in the second tier of luxury, plan to introduce more models domestically to enrich their product lines and reach most segments, and the two brands will continue to lead the second tier, followed by Lincoln and Jaguar Land Rover. Figure 3: 2017-2018 Domestic Luxury Brand Sales Data Source: CAAA, GEOS Research Institute According to the compulsory insurance data for new vehicles in 2018, both imported luxury and ultra-luxury brands experienced declines of varying degrees, with luxury brands falling slightly by 0.5% and ultra-luxury brands plummeting by 30.2%. The decline was mainly caused by tariffs, trade conflicts between China and the United States, cooling consumption and other factors. Figure 4: 2017-2018 Import Luxury Brand Insurance Data Source: CAAA, GEOS Research Institute Arrangement Figure 5: 2017-2018 Import Ultra-luxury Brand Insurance Data Source: CAAA, GEOS Research Institute Arrangement For some luxury brands, the automotive market into the cold does not seem to have a particularly big impact, but in the eyes of some brands has become an opportunity. One is the concept and behavior of Chinese consumers, and the other is that parallel importers are facing more severe survival problems under the poor environment. Judging by car consumption in 2018 The replacement ratio of first-and second-tier cities continues to rise, with luxury brands and joint-brand models becoming the top priority for consumers. While the notion of "consumer escalation" has been questioned somewhat in 2018, it is still a big trend, at least in luxury car sales. In the sales of imported luxury cars this year, we found that prices of some brands and models have risen rather than fallen, most notably the Lexus price hike and the new BMW X5 (G05) official price rise. Lexus and Porsche performed exceptionally well in the second half of 2018 for both direct and indirect reasons, with annual sales growth of 21 per cent and 12 per cent, respectively, due to falling tariffs and trade conflicts between the US and China. Lexus aimed at the short-term competitive advantage of this generation of products and began to raise prices in the face of strong sales performance, thereby improving profitability. The price increase for the new BMW X5 reflects another fact: the current dilemma of parallel imports. The backlog of imported vehicles in ports remains high, and trade conflicts and weak consumption have left most models unmarketable, putting huge financial pressure on parallel importers. Even if there is a larger concession, it can not be exchanged for consumption. Over time, dealers face the decision of whether to introduce parallel imports of new models in the face of mounting capital pressures. This is a tough decision, after all, when a car enters the Chinese market, the 3C certification price is in the million level, the price of the best-selling models are more expensive. In addition, with the follow-up luxury brand strong models will continue to domesticate the squeeze Living space of parallel entrance. Against this backdrop, luxury car companies will continue to dominate the introduction and profitability of imported cars. China's luxury car market will continue to face consumer pressure in 2019. On the domestic side, we expect sales growth of domestic luxury cars to slow further this year, possibly falling into the unit growth range, as the base expands and consumers' appetite for purchases diminishes. On imports, China's three-month moratorium on tariffs on imports of U.S.-made cars and parts from January 1, 2019, to March 31, will effectively ease pressure on some luxury cars, but how the policy changes thereafter will depend largely on progress in trade talks between the U.S. And China. Expanding imports from the United States is expected to form the basis of this year's trade talks, and U.S.-made cars and parts are likely to be an important part of them. Even with favorable factors such as tariffs, we remain flat on sales growth of imported luxury cars in 2019. Volkswagen's EBO, General Motors' GEM, and joint-venture car companies in China have been pointing to the low-priced FAW-Volkswagen's EBO (Economic Business Office) strategy for many years and will blossom and bear fruit this year. The project began with a separate Jetta brand, which launched an A-class sedan, an A-class SUV and an A + class SUV in 2019, and is expected to follow with an MPV. From the geographical distribution, FAW-Volkswagen will be the brand model manufacturer in Chengdu, Chengdu, is an expression of the use of low-cost models to power the West The determination of the market. At the product level, EBO model positioning will be lower than the current Volkswagen and Skoda brands, the main competitors for their own brands, but will use both PQ and MQB as a production platform. Unlike FAW-Volkswagen, GM uses the Global Emerging Market (GEM) platform as a starting point for releasing multiple models, which are planned to be covered under the existing Buick and Chevrolet brands. The Onix and Tracker will be the two GEM models to come out this year, and will also be targeted at the economy to cater to more common consumer tastes. As part of the low-cost strategy, the CVG engine family will become a must-have engine for the GEM platform, which is why we are worried about whether the GEM will deliver good results for GM in 2019 and 2020, after all, small-displacement turbocharged engines are still in the process of developing market acceptance. Whether it is Volkswagen, General Motors, or other joint brands have been to explore the direction of product development, the formation of a differentiated product structure and brand strategy. This is one of the effective ways to resist the downward exploration of domestic luxury brand products and the upward exploration of high-quality independent brand products, but at the same time, it will further blur the line between joint ventures and independent brands and form a more direct competitive relationship. The proportion of sales of first-tier cities to third-tier cities has risen, and in the future, the proportion of third-tier cities is expected to surpass that of second-tier cities. In 2018, the housing boom in low-tier cities and regions has affected the proportion of third-tier cities, and the contribution of different levels of cities and regions to the car market has also undergone significant changes. Tier 1 to Tier 3 The proportion of sales in the city increased year-on-year, with negative growth occurring from the fourth-tier to the counties directly under the provincial government. Judging from the current industrial value-added situation above the city level, the growth rate of first-tier and second-tier cities is declining, while that of third-tier cities is gradually rising. Based on this, we are optimistic about the follow-up car sales in third-tier cities, and in the future we may surpass second-tier cities to become the highest proportion region. Figure 6: 2017-2018 City Level Risk Data Source: CIRC note: Statistics exclude the weak subsidies of counties directly under the provincial governance.Double-Points System redefines the new energy market pattern The development of new energy vehicles in China has made remarkable achievements, but also accompanied by great controversies, and the role of China's new energy policy in recent two years has been adjusted from a larger market to a parallel development model of quality and quantity. In late 2018, the industry continued to discuss changes to new energy subsidy policies in 2019, with some general disclosures. Overall, a similar transition plan for 2018 will be adopted in 2019, with increased mileage for pure electric vehicles and fuel economy thresholds for plug-in hybrids, and the possibility of eliminating local subsidies. In terms of battery energy density, there is no additional technical requirement, but the threshold of the compensation factor has been significantly adjusted. Alternative energy subsidies are destined to recede sharply in 2019 and 2020 until they come to an end. The reason lies in the increasing financial pressure and the determination of the state to regulate the market and do a good job in the new energy industry. But the sharp decline in subsidies has become a heavy burden for the vast majority of car companies. How to do this when subsidies have fallen dramatically The balance between the cost and profit of new energy vehicles is a serious consideration for every car company. Almost all car companies will also have to comply with the "double points system" starting this year, either by producing cars or buying points. As subsidies recede to zero, another question arises: how will new-energy vehicles be priced after subsidies end? At this point in time, car companies are no longer thinking about 2019 subsidies as a basis for pricing, but "zero subsidies" as a standard to think about the cost and pricing of products two years later. Miao Wei, minister of industry and information technology, said at a meeting of 100 people of China's electric vehicles in January: "Relevant departments are urgently studying and formulating a subsidy policy for 2019. The general principle is to ensure that after all subsidies are withdrawn in 2021, there will be no major fluctuations in the industry, and the pressure brought about by the downhill will be released in stages, so as to prevent an excessive downhill slope from bringing about a big rise and then a big fall." . This can be interpreted as the tone of the "soft landing" of China's new-energy vehicle subsidies over the next two years being basically clear, and the upgrading of the new-energy industry will begin to take on a heavy burden this year. For the entire new energy industry chain, the decline in subsidies also means that the pressure to reduce costs is bound to spread to parts and raw materials. The shift from "subsidized" models to "compliant" models will also change the current dynamics of the new energy market. New energy products from joint ventures will enter the market in large numbers in the next two or three years, directly competing with the original, almost monopolistic, independent brands. And joint ventures seem to be getting ready for "zero subsidies" when they launch new energy vehicles. From a joint venture car company in In terms of models announced in 2018, we can broadly fall into three categories. One is a high-end electric car, one that satisfies the average consumer, and the other is a "compliance" model. Luxury brands will choose China as a major producer and exporter of pure electric vehicles in response to China's double-point system, so that car companies can not only meet the "production" test of China's double-point system, but also take into account the immature global market. In addition, pure electric vehicles such as Mercedes-Benz's EQC and the Audi-tron will be priced enough to ignore any impact of subsidies. The second type of electric vehicles is mainly plug-in hybrid vehicles. We have roughly counted about 25 PHEV models to be launched by joint ventures in 2018-2019, most of which are derived from current hot-selling models, so these models will further increase the share of plug-in hybrids in new energy sales in 2019 and will inevitably capture the market share of the original home-grown brands that mainly produce plug-in hybrids. 2019 will be a year of "role shifts" for pure electric vehicles-from "taking subsidies" to "complying with regulations". During the explosive growth of electric vehicles over the past few years, pure electric consumption, apart from some real private consumption, has been mainly in the areas of sharing, leasing, networking and so on. The expansion of these new economies has also accelerated the pace of cooperation between car companies and such platforms, pushing more and more new energy vehicles to these platforms to meet the demands of new energy vehicle digestion. Particularly in 2019, when the double-point system is officially implemented, the shared network will be accepted More "compliant" models. There are roughly three approaches to "compliance" with joint-venture brands: "car-borrowing", "doll sets" and "restart of independent joint-venture brands". Fluctuations in the subsidy policy will have a significant linkage effect on the short-term new energy market, which in turn will allow car companies to make adjustments in the sales strategy of new energy vehicles this year. Gesellschaft expects auto makers to subsidise margins themselves to stabilise consumer sentiment and possible sales volatility as the "national subsidy" falls and the "local subsidy" is finalised. At the same time, the local government may change the direction from direct financial support to administrative support, such as increasing the quota of new energy vehicles and introducing public, rental, network electric vehicle comparison requirements and other measures. The second wave of SUV sales in 2018 led many to believe the SUV boom was over. At the sales level alone, sales did drop 2.4% in 2018 compared with 2017, but the share in passenger cars rose 0.8% and the decline was smaller than the overall decline in passenger cars. From the analysis of the sales volume structure of passenger car segment market, SUV will inevitably form a more direct competition with sedan when it grows to a certain scale, and it is a kind of unequal dislocation competition. Usually at the same price, SUVs are one notch behind cars in body size, and space is often the most important thing for Chinese consumers. That's one reason why large, medium and medium-sized sedans will do so well in 2018. Table 1: Source of Sales Performance Data for Domestic Passenger Vehicle Market Segment 17-2018: CAAA, GEOCE Passenger Vehicle Forecast But SUVs are not expected to peak because of a year of cold weather. Instead, SUVs will continue to grow in proportion to passenger vehicles in the future. We have a preliminary estimate that the number of new or upgraded SUVs (including new energy sources) will reach about 200 in 2019-2020, far more than the 140 sedans. The increasing proportion of SUVs in the internal product portfolio will inevitably be reflected in the proportion of sales. Now with foreign auto companies in the Huafali SUV market will lead the SUV once again into a sound development path. The SUV strategy of foreign capital will exert great pressure on the autonomous car enterprises which rely heavily on SUVs, and the competition on SUV will become more and more fierce in the future. Unlike the past five years, the growth of SUVs will slow down in the future because the base and share have reached a certain scale. GE predict that SUVs will overtake sedan as that highest proportion of passenger cars in China around 2023. The Chinese passenger-car market, which looks set for 2019, began in trouble, but the end result may not be as bad as many expected. According to some sources, policies to promote automotive consumption are being studied and formulated, and the "automobile going to the countryside" will play the role of "rescuing the market" in China's automotive market in 2019 after many years. If the policy is properly implemented, it will improve car consumption in the near term in third-tier and lower regions, which will be conducive to sales growth in 2019 and 2020. Moreover, the introduction of this "automobile to the countryside" policy will also bring new Energy vehicles as a priority, vigorously promote the use of new energy vehicles nationwide.