A Zotye Damai X5 compact SUV on display on the Chengdu Auto Show, by Tycho de Feijter. Sales of passenger cars in China continue to surge. In July sales were up 26.3% year-on-year to 1.6 million units, the highest monthly growth in 30 months, according to the China Association of Automobile Manufacturers (CAAM). Sales over the first seven months of the year were up 11% to 12.64 million cars. Vehicle sales, passenger cars plus commercial vehicles, were up 9.84% to 14.68 million units in the first seven months. The main reason for the boost in passenger car sales is a government policy that halves purchase tax on cars with engines smaller than 1.6 liters. Sales of those cars rose a massive 38.6% to 1.14 million units in July, or 71% of the total. This policy started in October last year and serves two goals: to support local Chinese car makers who tend to build more cars with smaller engines than their western competitors, and to battle air pollution as smaller engines, in general, emit fewer pollutants. The sky is not always blue in China but its local brands are certainly getting stronger; sales were up 27.6% to 634,000 cars in July, representing a market share of 39.6%. The fastest growing segments are SUVs, up 57% to 628,000 units, and New Energy Vehicles (NEVs), up an incredible 93% to 38,000. NEVs include electric vehicles (EVs) and plug-in hybrid electric vehicles (PHEVs). The rise of the SUV is market-driven with compact SUVs being the most popular sub-segment. Chinese brands are profiting handsomely because they identified the opportunity first, and they were able to develop and launch dozens of new vehicles in a relatively short time. The segment is of vital importance for local car makers, with compact SUVs making up for more than half of their total sales. Sales of NEVs are supported by generous government subsidies that can add up to 90,000 yuan or $13,530. Other perks include free parking spaces and free license plates. The subsidies for NEVs are for Chinese brands only. They are aimed at supporting the local NEV industry, identified by the government as a growth sector, and at reducing air pollution. The policy appears to work. Ever more Chinese brands are offering NEVs and their quality is improving fast, which in turn leads to more sales again. It seems unlikely sales will slow down in the rest of the year. The tax brakes and subsidies will remain in place and many new cars are on the way. But there are a few worries. The NEV subsidies are becoming expensive, even for China, especially when sales keep going up. The big unknown is how long the government subsidies will continue; the most likely end date is 2020. Profitability is another problem. Every car maker continues to add ever more cars to their lineup, leading to an increasingly crowded market. This puts pressure on prices, and dealers are starting to offer steep discounts that can bring the list price down by as much as $3000. Sales will surely go up again - but profits might go down.
In July , Chinese car sales increased by 26.3 % from the same month last year , seeing the highest monthly growth in 30 months and sales of 1.6 million units . This surge in sales is largely attributed to a government policy that imposed purchase restrictions on cars with engines with a capacity of up to 1.6 million . These cars alone saw an increase of 38.6 % of market share from last year and thus represented 71 % of July ’s total sales output .