China’s Strong July Auto Sales Fuel Hopes for Growth

Visitors at an auto expo in Nanjing, China, last month.

Photo: str/Agence France-Presse/Getty Images

SHANGHAI—Chinese consumers flocked back to auto dealerships in July, boosting car makers’ hopes of returning to growth in the second half of the year and signaling a broader rebound in the world’s second-largest economy.

Retail passenger-car sales increased 7.7% in July from a year earlier, to 1.6 million units, the China Passenger Car Association said Tuesday, marking the strongest month of sales growth by percentage in more than two years.

While auto makers’ sales to dealerships had bounced back in the second quarter of the year, rising 10.4% year over year, sales to individual customers had remained weak, declining 3.4% in the April-to-June period compared with a year earlier as consumers only slowly began to spend again after the coronavirus brought China to a standstill in the first three months of the year.

The Chinese auto market now looks to be picking up, thanks to a combination of government incentives and bargain prices from dealerships eager to move vehicles off the lot. Those factors have helped bring in consumers even amid lingering fears over fresh outbreaks and the economy’s uncertain longer-term prospects.

While aggressive deals are enticing potential buyers, they are also cutting deep into profit margins. “Car dealers are facing increasingly intense pressure to cut prices in the second half in order to meet their yearly targets,” the state-backed China Automobile Dealers Association said last week, based on a survey of auto dealerships nationwide.

For now, the bargains are also failing to offset the buildup in inventory. In July, the growth in wholesale sales continued to outstrip that of retail sales, rising 16.4% from a year earlier, according to the China Association of Automobile Manufacturers. The government-backed body warned Tuesday of excessive inventory levels as dealers restock with vehicles for which there is so far insufficient demand.

Autonomous-vehicle road testing has skidded to a halt in the U.S. amid the Covid-19 pandemic. But China’s startups have pushed ahead by more than doubling the number of self-driving car projects, with a boost from the country’s 5G network. Photo: Lorenz Huber for The Wall Street Journal

If sustained, the pickup in consumer demand could ease some inventory pressure, the CPCA said Tuesday. Second-half sales are now on track to increase roughly 4% from a year earlier, resulting in a full-year sales decline of roughly 10% for 2020.

Sales of electric vehicles, meanwhile, rose 19.3% last month from a year earlier to 98,000 vehicles, CAAM said, marking the first month of yearly growth since mid-2019 for the once red-hot segment. Tesla Inc., however, sold 11,014 China-made Model 3s in the country in July, according to the CPCA, down 26% from its June sales figure.

Beijing last month rolled out a new promotional campaign to encourage sales of more than a dozen selected electric vehicle models produced by Chinese auto makers in smaller towns and cities. The government also vowed to develop a network of charging facilities covering China’s rural areas, as a part of a larger economic campaign to equip the country with next-generation infrastructure.

The Ministry of Industry and Information Technology will also ease restrictions and offer other forms of support to ailing electric-vehicle makers hit by the pandemic.

Electric-car maker XPeng Inc., which is backed by Alibaba Group Holding Ltd., said Friday that it has filed to list its shares in New York, after the debut of rival Li Auto Inc., which is backed by Tencent Holdings Ltd., on the Nasdaq last month.

Write to Trefor Moss at [email protected]

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