For the latest news on U.S.- and Hong Kong-traded Chinese stocks, visit our new Bamboo Works site.
As we cruise into the final day of a hectic earnings season, let’s take a quick look at results from leading car makers SAIC (Shanghai: 600104) and Dongfeng Motor (HKEx: 489) that provide the latest evidence that China’s car market is rapidly overheating. I’ve described this looming problem before, most recently by looking at the ongoing rapid build-up of new capacity that is likely to exacerbate the current overheating. (previous post) Read Full Post…
I frequently criticize Chinese firms for a herd mentality that often sees them rush blindly into emerging industries, but this time I need to redirect my criticism on foreign companies that are taking the same approach to the nation’s massive car market. The latest media reports cite Volkswagen (Frankfurt: VOWG) saying it will look to China to offset its slowing sales in the west, with plans to nearly double its Chinese production capacity over the next 5 years. (English article)
China’s luxury car sector is showing all the signs of overheating, as both domestic and foreign auto makers spend hundreds of millions of dollars to invest in a vast consumer market whose fast growth makes it increasingly vulnerable to bubbles in many areas. As the annual Beijing Auto Show begins this week, news has emerged that Nissan (Tokyo: 7201) plans to start production of its Infiniti cars in China, seeking to tap strong demand for luxury brands in the world’s largest auto market. (English article) Nissan’s plan comes just a week after US auto giant General Motors (NYSE: GM) announced a similar plan to produce its own luxury Cadillac brand in China. (previous post) Even domestic names are getting in on the act, with brands like Geely (HKEx: 175) and Chery making recent moves that indicate they want to enter the space. It’s easy to see why all the luxury brands are piling into China, where a growing number of affluent consumers are happy to pay big bucks to show off their newly wealthy status. After two years of breakneck growth fueled by government incentives, China’s broader auto market grew by an anemic 2.5 percent last year as the nation’s economy slowed due to global weakness and cooling measures by Beijing. Despite that slowdown, luxury car sales continued to boom, notching solid double-digit gains for the year. That growth has continued into the first quarter of 2012, even as the broader market contracted 3.4 percent in the same period. First-quarter sales for industry leader Audi (Frankfurt: VOWG) jumped 40 percent, while rival BMW (Frankfurt: BMW), the market’s second largest player, also notched healthy growth of 28 percent. While Cadillac and Inifiniti prepare to start local production, the existing luxury players are also all investing big money on their own expansions. Audi currently plans to more than double its annual capacity to 700,000 units per year from the current 300,000, and BMW is embarking on a similar plan that will see it spend 1 billion euros. Adding to the looming glut is Beijing, which has shown a previous inclination to protect domestic industries and to intervene in markets that appear to be overheating. Beijing showed its intentions for the luxury car space earlier this year when it published a preliminary list of approved models for purchasing by government departments – a big buyer of such vehicles for status-conscious officials. (previous post) In what came as a surprise to many, the list excluded all foreign brands, a huge exclusion for government agencies that now purchase $13 billion in cars a year. That provision was designed to help domestic automakers, but also provided a clear signal that Beijing wants to clamp down on luxury vehicle purchasing by government agencies as it seeks to address public perceptions of corruption and wasteful government spending. There’s every indication that demand won’t be able to keep up with the current breakneck expansion of capacity for the luxury car market, both due to natural limitations as well as this kind of government intervention. When that happens, the big automakers will quickly find they’ve spent hundreds of millions of dollars to build massive new capacity that could end up sitting idle for years until demand finally catches up with the current big wave of new investment.
Bottom line: China’s luxury car market is in the process of overheating, which will leave automakers with large amounts of excess capacity when the market slows over the next 2 years.
Related postings 相关文章:
◙ GM Discovers China Luxury Market — Finally 通用汽车在华投产凯迪拉克 亡羊补牢犹未为晚
Bottom line: ZTE’s move into smart cars and Gome’s into smartphones follow a typical Chinese pattern of herd mentality investing, and are both likely to fare poorly.
A couple of headlines are shining a spotlight on the herd mentality you often see among Chinese companies looking for the next big growth opportunity. One of those has telecoms stalwart ZTE (HKEx: 763; Shenzhen: 000063) buying a small bus maker, parroting a trend among a growing number of firms who see the future in smart vehicles. The other has the increasingly irrelevant electronics retailer Gome (HKEx: 493) rolling into the smartphone business, an area in desperate need of consolidation due to cutthroat competition. Read Full Post…
Just a day after fast-growing car services firm UCar confirmed a major new tie-up with e-commerce giant Alibaba (NYSE: BABA), we’re getting more details about the new alliance that appears to auger an end to Alibaba’s previous relationship with homegrown Uber rival Didi Kuaidi. At the same time, Alibaba has just announced its largest overseas purchase ever by paying $1 billion for a controlling stake of Southeast Asian e-commerce specialist Lazada.
These 2 news items continue a recent acceleration in M&A activity for the hyperactive Alibaba, which is quite in line with the hyperactive nature of its founder and chief pilot Jack Ma. This kind of cyclical hyperactivity has become the norm for Alibaba in recent years. It typically sees the company’s high-profile activity go into overdrive for a year or so, only to come to a sudden halt when things become overheated and problems emerge. Read Full Post…
Bottom line: Gubuli’s foray into the coffee business is doomed to failure, while Carrefour is likely to sell part of its China business to a local partner later this year.
You know the China coffee market is overheated when one of the nation’s most famous names in a traditional food like steamed buns enters the market. That’s what’s happening now, with word that Gobuli Group, a restaurant chain whose name is synonymous with a popular kind of meat-filled steamed buns, is launching a coffee chain joint venture in partnership with Australia’s Retail Food Group.
While the coffee business is quickly overheating, the opposite is true for the traditional supermarket business, which has seen several major western retailers leave the market or scale back operations as they face a growing challenge from e-commerce. Now it looks like French giant Carrefour (Paris: CA) could become the next in that trend, with word that it might consider selling some or all of its China business to a local partner. Read Full Post…
Sexy pictures of concept cars are filling the headlines this week as China’s biggest annual auto show revs up in Shanghai, but the bigger story at this year’s event is a sudden and dramatic slowdown in the nation’s luxury auto market. The newspapers have been brimming these last 2 days with reports from the show that opened on Sunday, including copious pictures of all the new car models that will soon hit the roads of the world’s largest car market. But interviews with executives from the big luxury brands were nearly identical in their conservative tone, with most executives saying they would be satisfied to see growth this year of just 10-15 percent. Read Full Post…
The auto industry is humming over new data that show China car sales soared 45 percent in January, marking their strongest growth since April 2010 when government incentives during the global economic crisis helped to turbocharge the sector. Industry watchers are acknowledging that seasonal factors played a major role in this latest jump, but point out that they still expect to see a return to strong growth in the upcoming Year of the Snake as China’s economy improves and consumers rediscover their love affair with cars.
A couple of interesting news bits are coming from the auto space, where a top foreign website operator is buying into the China car story, and where 2 major domestic manufacturers are set to announce a new tie-up. The former news is seeing US-based AutoTrader purchase a stake in Chinese peer BitAuto (Nasdaq: BITA), reflecting the arrival of a new generation of auto-related foreign firms to the fast-growing Chinese auto market; meantime, the second news is seeing a new R&D tie-up between Chery Automobile and Guangzhou Auto (HKEx: 2238), reflecting the industry’s overheated state and perhaps signaling the resumption of a stalled but much-needed consolidation.
I’ll wrap up this week with a couple of items from the car world, one of which has Japan’s Nissan (Tokyo: 7201) adding fuel to China’s looming auto glut while the other has yet another Chinese buyer helping forestall the long and tortured death of Sweden’s bankrupt Saab. My personal favorite among these 2 stories is Saab, as it’s quite a colorful saga; but Nissan is clearly the bigger of the items, so I’ll start with a look at the news that the Japanese automaker is planning to build a $785 million new plant in the northeastern port city of Dalian. (English article) The new plant is part of a broader plan to invest 30 billion yuan in China by 2015 previously announced by Nissan, China’s second biggest car brand and the most aggressive of Japan’s 3 major automakers in China. The new plant, being built together with Nissan’s China partner Dongfeng Motor (HKEx: 489), will initially have capacity to build 25,000 cars per year when it opens in 2015, but will expand rapidly to a a hefty 240,000 vehicles by 2017, according to a foreign media report, citing an unnamed source. This kind of rapid expansion, despite a recent cool-down in China’s auto market, is being seen throughout China’s auto industry, with most of the big foreign automakers including Ford (NYSE: F), BMW (Frankfurt: BMWG) and General Motors (NYSE: GM), all announcing major new initiatives over the last couple of years. I have no doubt that market growth will eventually accelerate again, and recent signs from Beijing indicate that could happen soon as it considers new incentives to boost sales. But the addition of new capacity for another 1 million or more vehicles looks a bit big to me for a market unlikely to sell more than 10 million vehicles this year; that means we could see lots of idle capacity in the next few years, forcing some weaker players, especially the domestic brands, to leave the market. Meantime, Saab, which is now in bankruptcy and hasn’t produced any cars since last year, is being sold to a Sino-Japanese partnership that plans to turn the brand into an electric car specialist. (English article) I’ve never heard of either the Chinese company, a Hong Kong-based firm called National Modern Energy Holdings, or the Japanese partner, Sun Investment. But I expect this pair are looking to buy the Saab name and perhaps some of its technology if the deal actually gets completed, and then they would probably shut down Saab’s money-losing Swedish operations completely. A more likely scenario would see this latest agreement collapse, just like an earlier rescue package that saw 2 other Chinese firms try and fail to buy the company. (previous post) Regardless of the final outcome, it does seem like the Saab brand may be destined to live on in China — an ironic development since the name is virtually unknown in the market.
Bottom line: Nissan’s latest plan for a massive new plant in northeast China marks the latest sign of a supply glut building for China’s auto sector.
Related postings 相关文章:
◙ Dwindling Demand Fuels Car Inventory Build-Up 中国汽车库存增加或引发价格战
The rapid slowdown in China’s auto sales has spread to the higher-end of the market, boding poorly for foreign names like Volkswagen’s (Frankfurt: VOWG) Audi brand and BMW (Frankfurt: BMW), which have invested heavily in the market on a bet that pricier cars were less vulnerable to industry downturns than more mainstream models. After two turbo-charged years of growth that saw Chinese car sales jump on strong buying incentives from Beijing, growth in the market has suddenly disappeared as incentives ended and the central government takes other tightening steps to cool the overheated economy. Makers of high-end products, such as luxury bags, homes and cars, love to say how their products are more immune to economic downturns than mainstream goods, even though the reality is that the suffering is usually just slightly delayed for these higher-end products. But even luxury cars appear to already be suffering in the current car slowdown, with foreign media reporting that sellers of premium brands are now offering discounts of 16-20 percent to maintain sales. Those discounts look similar to ones being offered by more mainstream brands such as VW and SAIC (Shanghai: 600104), as companies lower prices to try and offset cooling demand. I previously said that Chinese car makers with major foreign partners are best positioned to survive the current downturn, which is bad news for names like Chery and BYD (HKEx: 1211; Shenzhen: 002594), which lack such partners that have the resources to weather such slowdowns. Chery has received a setback on that front, with Japanese media reporting the company’s plan to produce Subaru-branded vehicles in a new joint venture with Fuji Heavy Industries (Tokyo: 7270) has been rejected by China’s state planner because the company’s major shareholder, Toyota (Tokyo: 7203), already has 2 joint ventures in China, the maximum allowed under Chinese law. (English article) Chery says it will go ahead with the plan to make Subaru cars despite the rejection, but the development looks like a big setback as the industry gears up for some painful restructuring under a slowdown that will last a year or more.
Bottom line: Luxury brands will face a 1-2 year slowdown in China’s auto market similar to that seen by mainstream automakers as China takes steps to cool the market.
Related postings 相关文章:
◙ Nissan Jumps on China Expansion Bandwagon, Overcapacity Ahead 日产加入中国市场扩张潮 未来料产能过剩
◙ China Carmakers Lose a BRIC in Export Drive 中国汽车厂商的出口机会将逐步缩窄
