China’s car market faces turbulence as discounts end, sales tax expires, Fitch says

China’s automotive market is likely to experience turbulence over the next five months as carmakers hit pause on a brutal discount war, before buyers return to the market to benefit from the soon-to-expire tax breaks.

Demand for petrol and electric vehicles (EVs) on the mainland could weaken this quarter as carmakers held back discounts and interest-free loans, Fitch Ratings said in a report on Tuesday, a move in compliance with recent admonishment from authorities in Beijing to maintain market order.

The rating firm predicted sales would rebound in the final quarter, with buyers seeking to capitalise on tax breaks on new-energy vehicle purchases that were due to be phased out by the year end.

“The Chinese authorities’ intervention to halt the prolonged price war marks a pivotal point for the auto sector,” said the report, adding that the near-term car demand had been suppressed. However, a potential reversal in price expectations and a year-end buying rush “could drive a sales rebound”, it added.

Fitch Ratings did not provide any sales forecasts.