Chinese car industry faces bumpy road as prices slide, volume hits peak, analysts say
Gross profits for carmakers may fall by as much as 10 to 15 per cent in the fourth quarter, says CLSA report
China’s car industry is hitting a few bumps in the road, with manufacturers likely to see prices deteriorate as volume hits its peak, analysts say.
The sector may see gross profits decline by as much as 10 to 15 per cent in the fourth quarter as average selling prices continue to slide, a CLSA report said.
Average prices from factories fell by 8 to 9 per cent between July and September, even as revenue increased 13 per cent, according to CLSA analysts Alexious Lee and Nick Feng.
And Chinese carmakers saw their gross margins — the percentage difference between revenue and cost of goods sold — decline by 1 to 3 per cent.
Things are “not as rosy” for the car sector, as Lee and Feng expect shipment volumes to grow by only 3 per cent in the fourth quarter, after spiking at 28 per cent in the third.
The market will now see a shift away from luxury vehicles to cars with engines smaller than 1.6 litres, with the distance between the market segments widening by 4.6 per cent so far in 2016. It may widen by 2.5 per cent in 2017, according to the report.