China car market heads for unprecedented second annual drop

China’s car sales continued their decline in November, extending a historic slump and all but ensuring a second straight annual drop for the world’s biggest market.

Sales of sedans, sport utility vehicles, minivans and multipurpose vehicles fell 4.2% from a year earlier to 1.97 million units, the China Passenger Car Association said Monday, citing preliminary figures. The decline was the 17th in the past 18 months, with the only increase coming this June as dealers offered large discounts to clear inventory.

A slowing economy has kept consumers away from showrooms, in particular in areas outside big cities where cheaper local brands are popular. Global automakers such as Japan’s Toyota Motor Corp. and Germany’s BMW AG have weathered the slump better, helped by demand for hybrid cars and premium vehicles.

The global companies’ local joint ventures dominate the Chinese car market. They are also continuing to invest in China after pouring billions of dollars setting up factories and sales networks in the country in recent decades.

Volkswagen AG and its Chinese partners will spend more than $4.4 billion next year to rev up electric-car production and add more SUVs. Tesla Inc. is close to starting mass production at its new Shanghai plant, its first outside the U.S.

Still, the slump has prompted some international brands to exit the country. Suzuki Motor Corp. pulled out of China in 2018 and Peugeot maker PSA Group said last month it plans to sell its 50% stake in a joint venture making DS brand cars in China.

Electric Slowdown

Wholesales of new energy vehicles cars, including electric vehicles, fell 42% last month to 79,000 units, PCA said. The Chinese government has poured billions of yuan into the NEV sector and reiterated last week that electric cars remain a priority as it wants to combat pollution and reduce reliance on imported oil. Still, sales of cars running on electric motors have been falling since July as regulators reduced subsidies.

BAIC BluePark New Energy Technology Co., China’s biggest maker of pure electric cars, forecast a 2019 loss in its earnings update. Warren Buffett-backed BYD Co. in October reported an 89% decline in third-quarter earnings and warned profit could fall as much as 43% this year. Unprofitable NIO Inc., which is traded in New York, has struggled to assuage concerns that it’s running short on cash.