[ET Net News Agency, 23 September 2020] S&P Global Ratings said today that it has
revised up its assumptions on China auto sales, incorporating better-than-expected
performance year to date and gradually improving consumer sentiment.
The credit rating agency now foresees 4%-6% auto sales growth in 2021, up from its
earlier assumption of 2%-4%. In absolute terms, S&P does not expect sales to return to
2019 levels until 2022.
China's auto sales growth turned positive from April and continued through August,
narrowing the year-to-date sales decline to 9.5% from the same period in 2019. Commercial
vehicles are leading the recovery and outperformed passenger vehicles on robust logistics
and construction demand.
Given that some pent-up demand has already been met, we expect the recent momentum to
soften in the rest of the year. Overall, S&P assumed auto sales will fall by 6%-9% this
year, compared with our previous expectation of 8%-10%.
New energy vehicle (NEV) sales are likely to pace up in the second half of the year,
after lagging behind traditional-engine vehicles in the first six months. NEV sales and
battery installation jumped more than 20% year over year on average in July and August.
S&P believes consumer acceptance of NEVs will trend up, with Tesla entering the market
and joint venture brands more aggressively launching new models. In China, the government
targets an NEV penetration rate of 25% by 2025, up from just about 4% now.
The agency believes China's proprietary brands will continue to lose ground amid the
COVID-related drag on passenger-vehicle sales. It thinks German and Japanese brands will
further gain market share, due to better functionality and technology, and higher residual
value. Premium brands will take a larger slice of the market on consumption upgrades and
launches of more compact models.
S&P's rated automakers, which are among the market leaders, are outperforming the
market. This is especially the case for China FAW Group Co. Ltd. (A/Negative/--), which
has higher exposure to commercial vehicles.
However, S&P has mostly negative rating outlooks on China auto original equipment
manufacturers (OEMs) and suppliers despite sequentially improving sales. It still sees
considerable pressure on rated names' financial performances due to intense competition.
Softer sales momentum, weakening margins, or higher leverage in the coming quarters could
lead to rating downgrades. (KL)