China Car Brands Look Like One-Hit Wonders
It’s Monday morning, which means there’s not too much news in the market yet and instead it’s a good time for one of my period looks at the broader auto industry. A wide array of new data is out on July sales, which show the continuing decline of China’s top 3 independent auto brands, BYD (HKEx: 1211), Chery and Geely (HKEx: 165). BYD’s top-selling model, the F3, continued its plunge in July, with sales down 41 percent from a year earlier. Sales for Chery’s top model, the QQ, grew just 0.9 percent, lagging the broader market and causing it to lose share. Geely doesn’t have a model in the top 20, but its overall sales fell 6.3 percent in July, a month when overall passenger vehicle sales rose 12 percent. The stumbling of these top 3 domestic brands bears a striking resemblance to a similar trend from six or seven years ago, when domestic cellphone makers like TCL (HKEx: 2618) and Ningbo Bird suddenly emerged to challenge the then-dominant positions of market leaders Nokia, Motorola and Samsung. But in that instance the domestic firms soon fell almost as quickly as they rose, never to return in most cases. The reason was relatively simple: they all soared to prominence on the strength of one or two popular models that captured the public’s interest. But then they failed to follow with more popular models in an industry where product life-cycles typically run around 2-3 years, causing them to quickly fade. The same now appears to be happening with these domestic car makers. Both BYD and Chery found quick success with the F3 and QQ, respectively, but are now struggling to develop popular new models as these successful ones near the end of their life cycles. If they fail to find other new hits soon, they could easily find themselves following in the footsteps of faded names like Ningbo Bird and TCL.
Bottom line: Domestic Chinese car brands Geely, BYD and Chery face a slow decline into irrelevance unless they can develop new models to replace their fast-fading older popular ones.
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◙ BYD Toots Electric Horn in Shenzhen 比亚迪在深圳奏响电动汽车号角
