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Spencer: Car Sales in China, Subsidies and Ford-Style Behemoths
A February 5 report by Norohiko Shirouzu published in The Wall Street Journal says that in January 790,000 vehicles were sold in China, compared to 657,000 in the U.S. A stonking achievement no doubt and, though U.S. sales reflected the tanking economy and sales in China were spread across the “dozens of small and spirited car makers” operating here, the news made me think of a prediction made by Gordon Orr of McKinsey & Company in an article published in October 2008. The forecast includes bright prospects for China’s auto industry in 2009 and even speculated on the possibility that a Chinese carmaker “propelled by new [electric] technology … could become the Ford Motor of the 21st Century.”
Noises from the Chinese government this week suggest that the aspirations of policy wonks in Beijing and the thinking of Mr. Orr are not too far apart.
I blogged recently (and also banged on about the same Mckinsey article) about how the Chinese government will reserve some of its huge stimulus spending for manufacturers of electrically powered cars, but it seems more help is in the pipeline. On January 27, Reuters reported that the government also plans to give subsidies to buyers of hybrid cars in thirteen Chinese cities throughout 2009, and, just yesterday, Dow Jones reported that further subsidies are to be given by the government to encourage sales of sub 1.3 liter minibuses in rural areas. When you add these policies to the cuts in sales taxes for low emission cars announced earlier this year it seems the government is pushing this sector quite hard. The figures quoted suggest that China’s consumers are taking the hint too. But it is a little too early to predict big sales of electrically powered cars in China this year.
Cars like the BYD Auto (1121.HK) F3 model are still relatively expensive and some commentators doubt that enough infrastructure exists to keep batteries charged. A couple of things are for sure though, electrical goods have a habit of dropping in price when production scales up, and given the approach to infrastructure building of the Chinese government which favors big splurges to measured prudence I don’t imagine electric cars will go plugless for long.
With huge government support and encouraging consumer signs it seems that the basic ingredients for Mr. Orr’s prediction are in place. As for which company will evolve into a Ford Motor-style behemoth is still a little bit too early to say, one thing that is for sure though is a lot of small companies will get swallowed up along the way.
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Spencer Sheehan edits sector research.
