China: Passenger car market grows significantly in April, but overall remains weak

Reuters and Automotive China report a strong recovery of the Chinese automotive market in April 2023. Although the start of the year was extremely weak, car sales in China increased massively in April: the increase also reflects a recovery compared to the same month last year, when Shanghai, China's largest city and center of automotive production, was locked down to contain a new type of coronavirus infection. In April, sedan sales rose by 50 percent to about 791,000, while multipurpose vehicle deliveries rose by 71 percent to about 95,000. The volume of crossovers and SUVs also rose by 60 percent to around 744,000.

The strong April could not (yet) turn around the overall negative trend of the Chinese market

However, due to weak vehicle demand in the first quarter, sales of new passenger cars in China fell by 1.3 percent to under 5.9 million for the full year up to April 2023.

Plug-ins are growing much faster than purely electric models

Despite the overall market downturn, the demand for electrified vehicles continued to rise: Electric and electrified models were still in demand in April. Retail sales of all-electric and plug-in hybrid cars rose by 86 percent to around 527,000 vehicles. Of these, around 370,000 were electric vehicles and 157,000 were plug-in hybrids, an increase of 74 percent and 122 percent year-over-year, respectively.

Up to April, around 1.84 million electric vehicles and plug-in hybrids were delivered across China, an increase of 36 percent. Sales of electric cars rose by 20 percent during this period to about 1.26 million, while deliveries of plug-in hybrids rose by 92 percent to around 580,000 vehicles.

Nearly 300 new models were shown in Shanghai – Tesla raises prices again

China's increasingly saturated automotive market feels further pressure, with almost 300 models exhibited at the auto show in Shanghai in April, including 172 NEVs according to Ways Consulting. Meanwhile, Tesla has sparked a price war: More than 40 car brands have joined the price competition, reducing prices for their best-selling models. As a result, more and more consumers, expecting bigger discounts, are choosing to wait before purchasing, according to the China Passenger Car Association.

The American electric car giant has since changed its course and increased prices in markets such as China again in May. The price increase by Tesla could help prompt those consumers to purchase who fear further price increases or simply wait and thus stabilize the overall market. This was stated by Cui Dongshu, Secretary General of the CPCA, at a media briefing on May 9, 2023.

Customers are spending their money differently – the car is losing out here

China's economic recovery after Covid has primarily favored spending on services such as restaurants and travel, while the sale of expensive goods like cars and smartphones has continued to slump.

What does this mean?

China also seems to be heading towards its “Peak Auto.” The market is now quite saturated, and Chinese consumers are not endlessly following the trend towards larger and higher-margin, more expensive cars. Additionally, there is a weak recovery in the real estate market and an unexpected decline in factory production activity. All of this also points to a shaky economic outlook, which clouds the strength of the recovery after Covid and possibly dampens consumer spending.