China’s old car trade-in push met with doubt amid soft demand

Electric vehicle makers welcomed China’s move to double the cash handout for internal combustion engine car trade-ins as others expressed doubt over its ability to spur consumer demand for big-ticket purchases.

The one-time rebate for trading in old ICE cars, or EVs registered before April 2018, for new qualifying models, was doubled to 20,000 yuan ($2,800), according to an announcement from China’s finance and economic planning agencies late Thursday, part of a 300 billion yuan package to stimulate sales of consumer goods.

Shares of EV makers and related stocks advanced Friday.

Zhejiang Geely Holding Group Co., one of China’s biggest privately held carmakers, said it supports all measures to take older inefficient vehicles off the roads and increase the adoption of new energy vehicles, according to a company representative.

The social media accounts of dealers for Geely, Tesla Inc. and BYD Co. were also quick to release videos encouraging buyers to take advantage of the increased subsidy. A 79,800 yuan Qin Plus plug-in hybrid sedan would cost only 59,800 yuan after the rebate, a video by a BYD dealer in Yunnan province touted.

However, there are questions about the effectiveness of the plan at a time when many automakers in China are struggling.

Morgan Stanley analysts led by Tim Hsiao wrote that the upgraded trade-in stimulus reaffirms the government’s commitment to bolster auto demand but also shows the challenges of sluggish domestic consumption and the ineffectiveness of previous sweeteners.

There are still concerns over people’s willingness to spend on large consumer discretionary items like cars, the analysts wrote in a note.

China’s auto-related retail consumption in the first half totalled about 2.3 trillion yuan, down 1.1% year-on-year. June auto retail spending of 437 billion yuan is 6.2% lower versus June 2023, National Bureau of Statistics data show.

While automakers everywhere are grappling with reduced demand, the issue, at least for several foreign carmakers, is becoming particularly acute in China, where often local brands win over consumers’ wallets.

Nissan Motor Co. slashed its operating profit outlook on Thursday and shut a plant in China last month.

CEO Makoto Uchida said he sees little chance of the company’s situation in China improving in the near future. “It’s a very challenging situation in the Chinese market right now," he said. “Local companies are launching new EVs every three months."

And while Hyundai Motor Co. reported a record quarterly profit that topped analysts’ projections, retail sales in China saw a steep decline of 32%.

Earlier this week, Honda Motor Co. said it will start cutting production of gasoline cars in China by 19% from October.

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