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China passenger car sales in May mark first gain in 2 years

Government subsidies help vehicle purchases rebound sharply

China's new-vehicle sales have grown for two months, logging a 14.5% gain on the year in May to reach 2.194 million units.   © EPA/Jiji

SHANGHAI -- New-vehicle sales in China have increased the past two months, recording 14.5% annual growth in May to 2.194 million units and stoking optimism in the world's largest auto market, which had slumped due to the coronavirus pandemic.

The news reflects continued growth in the sector, which rose 4.4% in April.

The figure for May includes the first increase in passenger vehicle sales since June 2018, driven by government efforts to jump-start the sluggish economy, the China Association of Automobile Manufacturers revealed on Thursday. Sales of passenger vehicles -- which account for more than three-quarters of total sales -- jumped 7% to 1.674 million units.

Commercial vehicle sales continued to expand, rising 48% to 520,000 units.

The association said the recovery was led by policy measures that increased consumer confidence and released pent-up demand.

Analysts at Shanghai's Industrial Securities are optimistic on passenger vehicle sales for the full year based on stimulus policies in major cities across China, saying, "The momentum created in the second quarter will be the turning point for growth."

Rebates offered by local governments and deals from automakers helped fuel demand. BYD gave rebates of up to 5,000 yuan ($707) last month in line with stimulus measures by the Pingshan district government in Shenzhen, where the automaker is located, according to local media outlet

Foreign automakers like BMW also tried to cash in on pent-up demand by offering low interest rates and trade-in rebates of up to 24,000 yuan.

Shanghai Securities in a recent report maintained its "overweight" rating for the automotive sector, citing economic stimulus policy.

The rise in demand was expected as a result of weekslong lockdowns and consumer preferences for private transport in light of the pandemic.

"We are comparing against months that were already slowing," said Tu Le, founder of Sino Auto Insights, an automotive consultancy in Beijing. Tu projects growth to continue, driven by aggressive promotions and new launches.

Market watchers outside China welcomed the news, hoping that new sales will pick up worldwide.

"China's return to vehicle market growth is a portent of what should happen in other markets as the COVID-19 pandemic subsides later this year," said David Leggett, an automotive analyst at GlobalData, a U.K.-based analytics company, which projected global light-vehicle sales to fall by 17% to 74 million units.

Even so, sales of new-energy vehicles in China -- a heavily subsidized subsector that includes electric vehicles, plug-in hybrids and fuel-cell vehicles -- declined by 23.5% to 82,000 units.

In April, Beijing extended for two years the incentives and tax exemptions on NEVs that otherwise would have been phased out by year-end. These came after NEV sales continued to decline more than those of other vehicles in the first quarter, following their first annual drop of 4% to 1.2 million units in 2019.

The extension helped push sales of Tesla's locally assembled Model 3 to an NEV-high of 11,095 units, according to the China Passenger Car Association. This marked a more than threefold increase compared with April, after the U.S. automaker reduced prices to qualify for incentives on cars costing less than 300,000 yuan.

Some investors have been swayed by Volkswagen Group in China, which last month announced efforts to strengthen what the German automaker called its "electrification strategy." The group will spend 1 billion euros ($1.14 billion) to raise its stake in JAC Volkswagen to 75% from 50%. The joint venture produces electric cars and will acquire 50% of JAG -- the parent of JAC -- a state-owned automaker in Anhui Province.

Separately, Volkswagen is also investing about 1.1 billion euros for a 26% stake in Gotion, a Chinese car battery maker.

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