China Auto Sales in July: Sales up YoY, Inventory Down for 3rd Straight Month

Consumer Discretionary / Industrials

Henry Kwon

Thematic (Sector/Industry)

China Automobiles / Thematic (Sector/Industry)

<p>China September auto sales was up 23.9% sequentially and up 5.7% YoY, with YTD cumulative sales showing a 4.8% YoY growth.  On seasonally adjusted basis, however, PV SAAR showed a 3.3% sequential gain in September but declined 6.8% on YoY basis, causing total SAAR to decline by 4.5% YoY.  This should come as no surprise since 2H16 high base effect should begin to impact YoY comparisons from this point onward to the end of the year.  As the author pointed out over the past 5 months, the strong selling rates from 2H16 driven by expectations for the end of the 10% tax break for C-segment cars served as the high base.  Investors should now monitor closely on how strong OEM marketing will impact selling rates in 4Q with expectation for the removal of the 5% tax break remaining to the end of the year, while keeping in mind that an exceptionally strong selling rate could also suggest front loading of 2018 demand.</p><p><strong>Here are some quick observations on the September industry figures:</strong></p><ol><li><div class="content-highlight">YTD average SAAR of 27.9m units is consistent with China's long term trend demand of 28m units.  As the author has been noting since Spring, without a significant macro shock that negatively impacts either purchasing power of the buyer or vehicle pricing, FY17 demand is likely to hover around trend demand of 28m units.  There are no surprises in September from the sales statistics.</div></li><li><div class="content-highlight">CADA has yet to publish retail inventory figures as of the time of this writing, but days inventory calculated from wholesale inventory published by CAAM suggests that inventory levels should remain fairly stable despite a strong jump in production and wholesale shipments.  </div></li><li><div class="content-highlight">Korean brand selling rates shot up, continuing the recovery trend that the author first pointed out in July (<a href="https://www.smartkarma.com/insights/china-auto-sales-in-july-sales-up-yoy-inventory-down-for-3rd-straight-month" target="_blank" data-smartkarma-citation="insights:12801">China Auto Sales in July: Sales up YoY, Inventory Down for 3rd Straight Month</a>).  YTD SAAR for Hyundai-Kia is down 43% YoY nonetheless, which is similar to the 36% drop in J3 selling rates over a 6 month period in Sep 12 to Feb 13, but the recovery pattern seems undeniable at this point.</div></li></ol><table class="table table-striped"><tbody><tr><td colspan="15" style="text-align: center;"><h2>China YTD Auto Demand</h2></td></tr><tr><td>(Mn Units)</td><td style="text-align: right;">Sep 17</td><td style="text-align: right;">Aug 17</td><td style="text-align: right;">MoM</td><td style="text-align: right;">Sep 16</td><td style="text-align: right;">YoY</td><td style="text-align: right;">YTD17</td><td style="text-align: right;">YTD16</td><td style="text-align: right;">YoY</td><td style="text-align: right;">Sep 17 SAAR</td><td style="text-align: right;">Sep 16 SAAR</td><td style="text-align: right;">YoY</td><td style="text-align: right;">YTD17 SAAR</td><td style="text-align: right;">YTD16 SAAR</td><td style="text-align: right;">YoY</td></tr><tr><td>PV</td><td style="text-align: right;">2.3</td><td style="text-align: right;">1.9</td><td style="text-align: right;">24.9%</td><td style="text-align: right;">2.3</td><td style="text-align: right;">3.3%</td><td style="text-align: right;">17.1</td><td style="text-align: right;">16.7</td><td style="text-align: right;">2.8%</td><td style="text-align: right;">25.9</td><td style="text-align: right;">27.8</td><td style="text-align: right;">-6.8%</td><td style="text-align: right;">23.8</td><td style="text-align: right;">23.4</td><td style="text-align: right;">1.6%</td></tr><tr><td>CV</td><td style="text-align: right;">0.4</td><td style="text-align: right;">0.3</td><td style="text-align: right;">18.0%</td><td style="text-align: right;">0.3</td><td style="text-align: right;">24.0%</td><td style="text-align: right;">3.1</td><td style="text-align: right;">2.6</td><td style="text-align: right;">17.8%</td><td style="text-align: right;">4.3</td><td style="text-align: right;">3.9</td><td style="text-align: right;">11.9%</td><td style="text-align: right;">4.1</td><td style="text-align: right;">3.5</td><td style="text-align: right;">16.7%</td></tr><tr><td>Total</td><td style="text-align: right;">2.7</td><td style="text-align: right;">2.2</td><td style="text-align: right;">23.9%</td><td style="text-align: right;">2.6</td><td style="text-align: right;">5.7%</td><td style="text-align: right;">20.2</td><td style="text-align: right;">19.3</td><td style="text-align: right;">4.8%</td><td style="text-align: right;">30.2</td><td style="text-align: right;">31.6</td><td style="text-align: right;">-4.5%</td><td style="text-align: right;">27.9</td><td style="text-align: right;">26.9</td><td style="text-align: right;">3.6%</td></tr></tbody></table><div class="content-caption">Sources: CEIC, Marklines and Authors estimates</div>

China September auto sales was up 23.9% sequentially and up 5.7% YoY, with YTD cumulative sales showing a 4.8% YoY growth.  On seasonally adjusted basis, however, PV SAAR showed a 3.3% sequential gain in September but declined 6.8% on YoY basis, causing total SAAR to decline by 4.5% YoY.  This should come as no surprise since 2H16 high base effect should begin to impact YoY comparisons from this point onward to the end of the year.  As the author pointed out over the past 5 months, the strong selling rates from 2H16 driven by expectations for the end of the 10% tax break for C-segment cars served as the high base.  Investors should now monitor closely on how strong OEM marketing will impact selling rates in 4Q with expectation for the removal of the 5% tax break remaining to the end of the year, while keeping in mind that an exceptionally strong selling rate could also suggest front loading of 2018 demand.Here are some quick observations on the September industry figures:YTD average SAAR of 27.9m units is consistent with China's long term trend demand of 28m units.  As the author has been noting since Spring, without a significant macro shock that negatively impacts either purchasing power of the buyer or vehicle pricing, FY17 demand is likely to hover around trend demand of 28m units.  There are no surprises in September from the sales statistics.CADA has yet to publish retail inventory figures as of the time of this writing, but days inventory calculated from wholesale inventory published by CAAM suggests that inventory levels should remain fairly stable despite a strong jump in production and wholesale shipments.  Korean brand selling rates shot up, continuing the recovery trend that the author first pointed out in July (China Auto Sales in July: Sales up YoY, Inventory Down for 3rd Straight Month).  YTD SAAR for Hyundai-Kia is down 43% YoY nonetheless, which is similar to the 36% drop in J3 selling rates over a 6 month period in Sep 12 to Feb 13, but the recovery pattern seems undeniable at this point.China YTD Auto Demand(Mn Units)Sep 17Aug 17MoMSep 16YoYYTD17YTD16YoYSep 17 SAARSep 16 SAARYoYYTD17 SAARYTD16 SAARYoYPV2.31.924.9%2.33.3%17.116.72.8%25.927.8-6.8%23.823.41.6%CV0.40.318.0%0.324.0%3.12.617.8%4.33.911.9%4.13.516.7%Total2.72.223.9%2.65.7%20.219.34.8%30.231.6-4.5%27.926.93.6%Sources: CEIC, Marklines and Authors estimates

September China Auto Sales: Unadjusted Volume Sales Up, SAAR Down on YoY Basis