Heisenberg Report

China’s Auto Slump Goes Viral In Record January Plunge

With a deadly respiratory virus spreading rapidly, Chinese buyers were reluctant to brave the showrooms – assuming any were open.

Auto sales in China plunged a dastardly 22% last month, the largest ever decline for January, according to data out Thursday from the China Passenger Car Association.

China’s auto market – the largest in the world – is mired in a historic slump. Sales have fallen in 19 of the last 20 months.

Economic deceleration and efforts to curb pollution have undercut the market to dramatic effect. Despite a raft of measures introduced to jump start things (pardon the pun), sales continued to fall throughout 2019. Deep discounts prompted one month of respite over the summer, but that’s about it.

Because the trade war (and other frictions) have undercut growth globally, there’s no relief from falling domestic demand. Tariffs and the popularity of ride-hailing services don’t help.

Now, the coronavirus is poised to make things considerably worse. 2020 was already set to mark the third straight annual drop for auto sales. The epidemic would appear to make that rather unfortunate prospect a foregone conclusion.

Obviously, February is to going to bad. Dealers and factories have been shuttered due to the virus, and major manufacturers have flagged operational difficulties amid efforts to contain the spread. The PCA says sales will likely fall 30% this month.

Many dealerships are still closed, inventories are swollen and – wouldn’t you know it – Hubei is a major source of auto production in China (Honda and GM have factories there, for example).

Electric vehicles are seen as particularly vulnerable going forward. EV sales plunged 54% last month.

But don’t worry, Tesla will be fine, I’m sure.