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back to index backCHINAtalk November,  2016


Autos/Trucks: China Vehicle Demand Continues to Outperform Expectations

China auto demand rose 27% yoy, benefitting from easy comps and likely pre-buy with government incentives set to expire at the end of 2016. Given this backdrop, OEMs are increasing production and Q3 likely finishes +30-35% (versus consensus +16%). Even with higher build rates, inventory levels ticked down in August and remain near two-year lows. Commercial vehicle production expanded 40% in August and continues to outperform estimates. During Q3 reporting, we expect market participants to raise 2016 outlooks (market tracking +20% versus estimates near +10%).

- China auto demand rose 27% yoy and is up 26% quarter-to-date. Sales are tracking well above our Q3 estimate for 10% growth, driven by strong demand over easy comps and likely some pre-buy ahead of the end of government incentives. While there continues to be uncertainty over a possible extension to government incentives (ending in December), the market appears to be calibrating for end of incentives.

- August auto demand by OEM:
----- OEMs gaining share: BYD (+90% yoy), Geely (+68% yoy), Toyota (+40%).
----- OEMs losing share: Brilliance (-31% yoy), PSA (-17%), Jianghuai (-7%).

- On a two-year comp (normalizing for weak 2016), production is up 20-25% QTD. Although comps become tougher after September, continuing this pace would support near 10% growth in Q4. If the incentives end in 2016, we believe the market could see 10-20% declines in the first quarter of 2017 (payback after prebuy and inflated production in 1H-16) with declines starting to moderated in the second quarter.

- Production expanded 30% in August and is up 30-35% quarter-to-date. Production is rising well ahead of initial IHS/consensus expectations for 16% growth. Ford recently noted that OEMs were increasing production to support current demand and also likely pre-buy in coming months. Even with the strong production growth, the CADA early warning inventory index dropped 40bps to 49.1%, near the lowest levels in the past two years.

- Commercial vehicle demand expanded 34% in August, benefitting from an easy yoy comp (-22%). Demand was driven by strong performance in the heavy-duty segment (+44% yoy), along with solid medium duty truck and bus growth (up 25-30%).

- August Heavy-duty demand by OEM:
----- OEMs gaining share: CAMC (+84% yoy) and China FAW (+73%).
----- OEMs losing share: Beiqi Foton (+26% yoy) and Shaanxi (+29%).

- Commercial vehicle production expanded 40% in August and is tracking well above our estimate for 10% growth in Q3. China demand continues to outperform expectations in 2016; we expect our/consensus estimate for 10% growth in 2016 to move higher due to market strength.

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Source: BAIRD - GAI





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