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CSCI-Auto-China Auto Sector：Shipments to continue to decline albeit amid the peak season - 20181031

Shipments to continue to decline albeit amid the peak season

PV sales decline deteriorated to double-digit percentages since Sep-18 after that of sedan extended. Sedan and SUV sales decline further expanded to double-digit percentages in Sep-18, dropping 13.4% YoY and 10.1% YoY, down substantially from Aug-18’s 3.4% and 4.7% YoY decline respectively. On the basis that sedan sales usually account for more than 50% of total PV shipments, deterioration in sedan sales growth amid a traditionally peak sales season would bode badly for the entire PV market in the remainder of the year, in our view.

Retail sales indicate continued slide in Oct018 to weigh on 4Q18 shipments. According to CPCA, weekly auto retail sales growth in the first three weeks of Oct-18 slowed down further to -49% YoY, -12.7% YoY and -23.3% YoY from Sep-18’s -29.4% YoY, -22.5% YoY and -18.5% YoY respectively. On assumption that auto retail sales growth to continue to decline in the near term and given the high base of 4Q17, subsequently to drag on 4Q18 shipment growth, we anticipate PV shipments to post negative growth for the full-year in FY18E, the first time in last 20 years.

A price war looming large. Despite the broad-based decline in PV sales, the price cut strategy of some of the industry players had paid off, in particular GWM which has seen its market share increased to 4.2% in Sep-18 from 3.58% in Aug-18, primarily driven by higher H6 shipments after its official announcement to slash prices in Sep-18. Nonetheless, we expect an increasing number of players to follow suit, thus triggering more promotion activities, especially for those relatively less popular models, in the near term, if sales growth continues to slow in 4Q18. However, in our view, slashing prices may be a less effective strategy in driving sales growth going forward amid the subsequent industry-wide price cuts with the car manufacturers and dealers to ultimately bear the brunt of decreased margins as the price war escalates.