2017 Is Shaping Up To Be Another Banner Year For Vehicle Sales In China

For the first nine months of 2017, total sales of trucks, buses, and passenger cars in China were up 4.5% to 20.2 million units, close to the 5% increase that most auto analysts are predicting for the full year. China is on track to be the world’s largest car market for the eighth consecutive year.

Within the overall numbers, however, three segments — heavy trucks, passenger car electric vehicles (EVs) and SUVs — showed above average, double-digit growth. Heavy trucks led the way with a 77.7% increase to 875,000 units; passenger car EVs followed close behind with a 75.1% increase to 258,000 units; while sales of SUVs continued their momentum with a 16.1% increase to nearly seven million units.

Heavy Trucks. Percentage-wise, heavy trucks were the best performing vehicle category through September. According to the China Association of Automobile Manufacturers, sales of heavy trucks increased 91% year on year in September and almost 78% for the first nine months of the year. The continued stabilization of the Chinese economy, increased spending on infrastructure projects and steady growth in the country’s manufacturing sector are the reasons given for the strength in demand.

For the entire year, heavy truck sales are expected to exceed 1.1 million units. While this will be an impressive increase over 2016, it only represents a return to the level of sales achieved over six years ago in 2010. During the first 10 years of this century, when China was building out its infrastructure and the national highway system was being put in place, heavy truck sales increased at an annual compound rate of 28.1%, from 85,000 units in 2000 to just over one million units in 2010. Over the next five years, sales declined steadily to below 600,000 units in 2015. After rebounding in 2016, sales are surging in 2017.

Passenger Car EVs. While admittedly growing from a small base, passenger car EVs continued to show impressive sales gains, increasing by 75.1% during the first nine months. Although subsidies for New Energy Vehicles (NEVs) are scheduled to be phased out in 2021, central and local government payments of up to $9,000 per vehicle will continue to provide a powerful incentive for consumers until then.

Offsetting sales increases in EV passenger cars, sales of electric commercial vehicles, primarily electric buses, declined by 3.5% through September. In order to combat the fraudulent use of subsidies, so-called “Green Car Fraud,” the Chinese government aggressively audited electric bus companies in the first quarter, negatively impacting sales. Moreover, it is rumored that China may slash electric bus subsidies by as much as 65% in 2018.

At the same time that it plans to phase out subsidies for NEVs, China is taking a number of steps to ensure that the country remains the dominant player in NEVs globally. In September, China’s Ministry of Industry and Information Technology proposed new rules that will require automakers to produce and sell a certain number of NEVs in China. In order to encourage the flow of EV technology to China, the country is relaxing its requirement that foreign companies have a Chinese partner in order to produce vehicles in the country. Tesla has reportedly reached an agreement with the Shanghai government to build a production facility in the city’s free-trade zone. Other than an export only factory in which Honda was allowed to take a 65% ownership interest in 2003, Tesla’s factory will be the only car assembly plant in China in which a foreign company owns more than 50%.