China’s auto sales slide may be obscuring a demand shift in the industry’s largest market

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Some of China’s automobile industry watchers are putting their hopes on a new growth trend, driven by consumer demand for more intelligent cars.

a clear focus for start-ups and foreign auto giants alike at this week’s Shanghai Auto Show. For some in the industry, they say it will be the smartphone-like interface of the new vehicles that will really attract buyers. Those consumers are increasingly using internet-connected services such as food delivery for daily life, especially in China.

“The key point is not new energy. The key is smart,” Fu Qiang, president and co-founder of electric vehicle start-up Aiways, said Wednesday in a Mandarin-language interview translated by CNBC.

“The entire decline in the auto industry, much more, in my personal view — of course has some small connection to the economy — but I think the greater reason is that customers right now are not satisfied with the product mix,” said Fu, formerly president and CEO of Volvo Cars China.

China battery-electric vehicle unit sales forecast (in millions)

Source: Morgan Stanley Research

A nine-month slide in automobile sales in the world’s largest vehicle market has many worried about a significant slowdown in the Chinese economy, and the wallets of a population of more than 1 billion. Last year, uncertainty about the fallout from the U.S.-China trade war and Beijing’s efforts to reduce reliance on debt for growth put a chill on spending, especially on big-ticket items such as cars.

Much of the decline in auto sales in the last two years was the result of a tough comparison with rapid growth in 2016, Alan Kang, Shanghai-based senior market analyst at LMC Automotive, said on Tuesday. He noted a major drop came from decreased demand from China’s smallest cities for domestic auto brands, while premium foreign brands had less of an impact.

“This year will be overall a year of recovery,” Kang said in a Mandarin-language interview translated by CNBC. And despite subsidy cuts, he said he expects sales volume in new energy vehicles to increase to 1.5 million from 1 million last year.

The category — which includes both pure battery-powered vehicles and hybrids — has been a bright spot in China, helped by favorable government policies. Sales grew 62 percent last year, while overall auto sales fell for the first time in more than 15 years, according to data from the China Association of Automobile Manufacturers accessed through the Wind Information database.

Source: CNBC

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